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Month: March

Revision under Section 264 of Intimation Issued Under Section 143(1)

ISSUE FOR CONSIDERATION

Section 264 is one of the important provisions under the Act beneficial to the assessee, whereunder the higher authority has been given the power to revise any order passed by the lower authority and pass a revisionary order in favour of the assessee. The CIT or PCIT or CCIT or PCCIT (referred to as CIT hereafter) may, either of his own motion or on an application made by the assessee in this regard, revise any order passed by any authority which is subordinate to him. The CIT has to pass an order as he thinks fit, which cannot be prejudicial to the assessee.

Section 264 reads as under:

“Revision of other orders.

264. (1) In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may, either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit.

(2) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner shall not of his own motion revise any order under this section if the order has been made more than one year previously.

(3) In the case of an application for revision under this section by the assessee, the application must be made within one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know of it, whichever is earlier:

Provided that the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may, if he is satisfied that the assessee was prevented by sufficient cause from making the application within that period, admit an application made after the expiry of that period.

(4) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner shall not revise any order under this section in the following cases—

(a) where an appeal against the order lies to the Deputy Commissioner (Appeals) or to the Joint Commissioner (Appeals) or the Commissioner (Appeals) or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or, in the case of an appeal to the Joint Commissioner (Appeals) or the Commissioner (Appeals) or to the Appellate Tribunal, the assessee has not waived his right of appeal; or

(b) where the order is pending on an appeal before the Deputy Commissioner (Appeals); or

(c) where the order has been made the subject of an appeal to the Joint Commissioner (Appeals) or the Commissioner (Appeals) or to the Appellate Tribunal.

(5) Every application by an assessee for revision under this section shall be accompanied by a fee of five hundred rupees.

(6) On every application by an assessee for revision under this sub-section, made on or after the 1st day of October, 1998, an order shall be passed within one year from the end of the financial year in which such application is made by the assessee for revision.

Explanation.—In computing the period of limitation for the purposes of this sub-section, the time taken in giving an opportunity to the assessee to be re-heard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.

(7) Notwithstanding anything contained in sub-section (6), an order in revision under sub-section (6) may be passed at any time in consequence of or to give effect to any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.

Explanation 1.—An order by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner declining to interfere shall, for the purposes of this section, be deemed not to be an order prejudicial to the assessee.

Explanation 2.—For the purposes of this section, the Deputy Commissioner (Appeals) shall be deemed to be an authority subordinate to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.”

Thus, the assessee has been provided the benefit of seeking revision of the order passed by the AO under Section 264, but with the condition that such order should not be appealable, or if appealable, then no appeal should have been filed against such order.

Quite often, the issue has arisen as to whether an ‘intimation’ issued under Section 143(1) can be regarded as an ‘order’ for the purposes of Section 264 and can, therefore, be the subject matter of revision under Section 264. The Delhi and Bombay High Courts have taken a view that the order referred to in Section 264 would include an intimation issued under Section 143(1) and, therefore, can be revised. However, the Gujarat, Kerala and Karnataka High Courts have taken a contrary view.

EPCOS Electronic Components SA’s Case

The issue had come up for consideration by the Delhi High Court in the case of EPCOS Electronics Components SA vs. UOI [WP (C) 10417/2018, 10th July, 2019].

In this case, the assessee filed its return of income for the Assessment Year 2014–15 by offering tax @20 per cent on its earnings for the provision of management services to its associated enterprise, EPCOS India Pvt. Ltd. in terms of Article 13 of the Double Taxation Avoidance Agreement entered into between India and Spain. The AO by an intimation dated 10th March, 2016, under Section 143(1) processed the said return of income. Later, the assessee realised that it had failed to claim the lower rate of tax it was eligible for, by virtue of Clause 7 of the Protocol appended to the India-Spain DTAA. Another mistake committed by the assessee was that it paid a surcharge and cess on the tax, which was not required to be paid, as the tax rate under the DTAA was a final rate inclusive of surcharge and cess. This led the assessee to file a revision petition under Section 264 on 16th January, 2017, before the CIT, seeking to revise the order under Section 143(1), claiming it to be prejudicial to the assessee’s interest.

The CIT rejected the application filed by the assessee under Section 264 on the grounds that no amount was payable by the assessee in terms of an intimation under Section 143(1), and therefore, no prejudice was caused to the assessee in terms thereof. Alternatively, the CIT held that the assessee should have filed a revised return claiming the relief so claimed by it in the revision application. Further, it was held by the CIT that Section 264 could not be invoked to rectify the assessee’s own mistakes, if any. Against the said order, the assessee filed a writ petition before the High Court.

The question before the High Court was whether a revision petition under Section 264 was maintainable to rectify the mistake committed by the assessee while filing its return, which had been accepted by the Department by issuing an intimation under Section 143(1). Before the High Court, the assessee relied upon the decision in the case of Vijay Gupta vs. CIT 386 ITR 643 (Delhi) and the revenue relied upon the decision in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. 291 ITR 500 (SC) to urge that an intimation under Section 143(1) could not be treated as an ‘order’ and, therefore, no petition under Section 264 could be maintained against such intimation.

The High Court observed that the decision in Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) was in the context of Sections 147 and 148. If the original assessment was under Section 143(3), then the proviso to Section 147 would be attracted, and the procedure prescribed thereunder for re-opening an assessment would have to be followed. On the other hand, if the return had been accepted by the Department by a mere intimation under Section 143(1), then a different set of consequences would ensue, and there would be no requirement for the department if it were to re-open the assessment to follow the procedure it would have had to had the assessment order been passed under Section 143(3). The context of the case before the High Court was totally different. It was not an attempt by the Revenue to re-open the assessment by invoking Sections 147 and 148 but was of the assessee realising the mistake made by it while filing the return of paying a higher rate of tax.

In such a context, the intimation received by the assessee from the AO accepting the return under Section 143(1) would partake the character of an order for the purpose of Section 264, though in the context of Sections 147 and 148, it might have had a different connotation. However, the consistent view of the High Court, as expressed in Vijay Gupta (supra) and the other decisions which have been cited therein, has been that for the purposes of Section 264, a revision petition seeking rectification of the return accepted by the Department in respect of which intimation is sent under Section 143(1) was indeed maintainable.

On this basis, the High Court disagreed with the view expressed by the CIT and held that a revision petition under Section 264 would be maintainable vis-à-vis an intimation under Section 143(1).

A similar view has also been expressed by the Bombay High Court in the cases of Diwaker Tripathi vs. Pr CIT 154 taxmann.com 634 (Bom),Smita Rohit Gupta vs. Pr CIT 459 ITR 369 (Bom) and Aafreen Fatima Fazal Abbas Sayed vs. ACIT, W.P. (L) NO. 6096 OF 2021 dated 8th April, 2021.

Gujarat Gas Trading Co. Ltd.’s Case

The issue again came up for consideration before the Gujarat High Court in the case of Gujarat Gas Trading Co. Ltd. vs. CIT (Special Civil Application No. 2514 of 2011, order dated 7th September, 2016).

In this case, for the Assessment Year 2003–04, the assessee company filed its return of income declaring income of ₹3.31 crores, which included a sum of ₹1.87 crores pertaining to expenses on account of commission which had been disallowed wrongly. These expenses were disallowed under the mistaken belief that the assessee was allowed to claim a deduction of these expenses only upon payment. The return of income of the assessee company was accepted by the AO under Section 143(1) without scrutiny, and the refund claimed was issued.

Having realised the error in not claiming the deduction of expenditure on accrual basis while filing the return, the assessee filed a petition before the CIT under Section 264 on 29th December, 2008, seeking revision of the intimation / order under Section 143(1). In response, the assessee was called upon to produce necessary evidence in support of the date of receipt of the intimation under Section 143(1). Instead of replying, the assessee filed a fresh petition for revision on 13th April, 2009, which was rejected by an order dated 3rd December, 2009, inter-alia, on the grounds that the revision petition was filed after a lapse of about six years. The assessee approached the High Court against the order of dismissal mainly on the ground that it was not provided any opportunity to explain the delay. The High Court directed the CIT to decide the matter afresh after giving an opportunity of hearing to the assessee.

In the revision proceeding which was initiated afresh, the CIT rejected the revision petition on the grounds of delay as well as maintainability. The CIT held that the intimation was not a revisable order. He relied upon the decision of Karnataka High Court in the case of Avasaraja Automation Ltd. vs. DCIT 269 ITR 163 in which it was held that the petition under Section 264
against intimation was not maintainable in view of the deletion of Explanation to Section 143 with effect from 1st June, 1999. The assessee challenged the order of the CIT on both counts by filing a petition before the High Court.

Before the High Court, with respect to the issue of maintainability, the assessee argued that, under Section 264, any order is subject to revision and not only an order of assessment. Even acceptance of assessment without scrutiny and intimation thereof in terms of Section 143(1) was an order of assessment, may be without scrutiny. The assessee also placed reliance upon the following decisions:

i. C. Parikh & Co. vs. CIT 122 ITR 610 (Guj)

ii. Assam Roofing Ltd. vs. CIT 43 taxmann.com 316 (Gauhati)

iii. Ramdev Exports vs. CIT 251 ITR 873

iv. Vijay Gupta vs. CIT (supra)

The revenue contended that the intimation under Section 143(1) was neither an order of assessment nor an order which was capable of revision under Section 264. It was merely an administrative action of intimating the assessee that his return was accepted. The revenue relied upon the amendment made in Section 143(1) with effect from 1st June, 1999, when the explanation was dropped and submitted that, prior to 1st June, 1999, the AO had the power to make prima facie adjustments. Due to this, the intimation under Section 143(1) was deemed to be an order of assessment for the purpose of Section 264. The revenue also relied upon the following decisions where it had been held that an intimation was not capable of being subject to revision under Section 264:

i. CIT vs. K. V. Mankaram and Co. 245 ITR 353 (Ker)

ii. Avasaraja Automation Ltd. vs. DCIT 269 ITR 163 (Kar)

The High Court held that the assessee had failed to explain the delay and, therefore, the order of the CIT not condoning the delay was upheld. The High Court also accepted the view of the CIT that against the intimation under Section 143(1), the revision petition was not maintainable for the following reasons:

• ‘Any order’ referred to in Section 264 was not meant to cover even mere administrative orders without there being any element of deciding any rights of the parties.

• In the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra), the Supreme Court observed that acknowledgement under Section 143(1) is not done by an AO, but mostly by ministerial staff. It could not be stated that by such intimation, the assessment was done.

• An Explanation was added below Section 143 by the Finance Act, 1991, with effect from 1st October, 1991, which provided that an intimation sent to the assessee shall be deemed to be an order for the purpose of Section 264. This explanation came to be deleted with effect from 1st June, 1999, when Section 143 itself underwent major changes. It could, thus, be seen that during the period when, under subsection (1) of Section 143, the AO had the power of making prima facie adjustments, the legislature provided for an explanation that an intimation sent to the assessee under subsection (1) would be deemed to be an order for the purposes of Section 264. Once, with the amendment of Section 143, such powers were rescinded, a corresponding change was, therefore, made by deleting the explanation and withdrawing the deeming fiction.

The High Court also dealt with each of the decisions which was relied upon by the assessee and distinguished it. The decision in the case of C. Parikh & Co. (supra) was held to be focusing on the question of whose mistake can be corrected by the CIT in revisional powers, whether of the assessee or the AO and did not concern the question whether an intimation was open to revision or not. Similarly, in the case of Ramdev Exports (supra), the question of maintainability of a revision petition against a mere intimation under Section 143(1) did not arise. In the case of Vijay Gupta (supra), before the Commissioner, the assessee had not only challenged the intimation under Section 143(1) but also the rejection of application under Section 154. Thus, these decisions relied upon by the assessee were held to be distinguishable.

OBSERVATIONS

Section 264 is a beneficial provision whereunder the higher authorities have been empowered to pass a revisionary order, not being prejudicial to the assessee, revising the order passed by the lower authorities. The objective of this provision is also to provide a remedy to an assessee when he is aggrieved by any order passed against him, whereby he can approach the higher authority within the given time limit requiring it to pass the revisionary order not prejudicial to him.

The whole controversy under consideration revolves around only one issue, i.e., whether the intimation issued under Section 143(1) upon processing of the return of income filed by the assessee can be considered to be an order. The issue is whether the word ‘order’ used in Section 264 should be interpreted so strictly so as to exclude any other intimation which has not been termed as ‘order’ under the relevant provision of the Act, although it has been generated and issued by the AO, and more particularly when it otherwise determines the total income and tax liability of the assessee.

Firstly, it needs to be appreciated that the term ‘order’ is not defined expressly in the Act. The simple dictionary meaning of the term ‘order’ is an authoritative command or instruction. When the intimation is issued under Section 143(1) upon processing of the return of income filed by the assessee, it is nothing but an official instruction which is issued under the authority of the AO determining the amount of total income and tax liability of the assessee after incorporating necessary adjustments, if any, to the return of income filed. Merely because it has been referred to as ‘intimation’ and not ‘order’ under Section 143(1), it cannot be considered as not falling within the purview of Section 264.

By relying upon the decision of the Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra), the revenue has attempted to argue that the intimation is not an assessment order and, therefore, there is no application of mind by the Assessing Officer when such intimation is issued. However, it needs to be appreciated that the provision of Section 264 does not only bring the ‘assessment order’ within its purview but it brings all types of orders within its purview. Therefore, to examine the applicability of Section 264, it is irrelevant to consider the fact that the intimation issued under Section 143(1) is not an assessment order. What is relevant is that it bears all the characteristics of an order, although it is not an assessment order.

The Gujarat High Court has heavily relied upon the omission of Explanation to Section 143 with effect from 1st June, 1999, which had provided that the intimation shall be deemed to be an order for the purpose of Section 264. It has been observed that since the power to make the prima facie adjustment while processing the return of income had been removed, the intimation was no longer regarded to be an order for the purpose of Section 264. However, it needs to be appreciated that in various cases, the Courts have also allowed the assessees to raise fresh claims under Section 264 which were never raised by them in the return of income. Therefore, it was not only prima facie adjustments in respect of which relief could have been sought under Section 264.

Besides, Section 143(1), as amended by the Finance Act 2008 with effect from 1st April, 2008, now permits certain adjustments to be made under six circumstances referred to in clause (a) thereof. The Gujarat High Court decision was rendered for AY 2003–04, at a point of time when no adjustments were permissible under Section 143(1). Therefore, by the logic of the Gujarat High Court itself, an intimation should now be regarded as an order.

An intimation under Section 143(1) is also now an appealable order under Section 246(1)(a) as well as Section 246A(1)(a) with effect from 1st July, 2012. Though it is appealable only if an assessee objects to the adjustments made, the very fact that it is placed at par with other orders clearly brings out the fact that an intimation is now an order.

The heading of Section 263 also refers to “Revision of Other Orders”, and the section itself refers to any order other than an order to which Section 263 applies. This is broad enough to cover an intimation under Section 143(1).

In CIT vs. Anderson Marine & Sons (P) Ltd 266 ITR 694 (Bom), a case relating to AY 2009–10, a year in which adjustments under Section 143(1) were not permissible, the Bombay High Court held that sending of an intimation, being a decision of acceptance of self-assessment, is in the nature of an order passed by the AO for the purposes of Section 263. If so, the same logic should apply to Section 264 as well.

The Delhi High Court in Vijay Gupta’s case rightly pointed out that Circular No.14(XL-35) of 1955, dated 11th April, 1955, which required officers of the Department to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs, and Article 265 of the Constitution of India, which prohibited the arbitrary collection of taxes stating that ‘no tax shall be levied or collected except by authority of law’, had not been considered by the CIT while rejecting the revision petition. If this is taken into account, the assessee should not be denied a deduction rightfully allowable in law, merely because it is not claimed in the return of income, on the grounds that the assessee has no remedy under Section 264 against an intimation.

Further, an intimation issued under Section 143(1) is amenable to rectification under Section 154. Therefore, consider a case where the order of rectification has been passed under Section 154, rectifying the intimation issued under Section 143(1), either suo moto or upon an application made by the assessee in this regard. In such a case, the rectification order would fall within the purview of Section 264, it being an ‘order’, upon taking such a strict interpretation, whereas the intimation itself which has been rectified by the said order would not fall within its purview. Thus, such an interpretation leads to an absurd result, which needs to be avoided.

Therefore, at least as the law now stands, thebetter view is that taken by the Delhi and Bombay High Courts considering the intimation issued under Section 143(1) to be in the nature of ‘order’ for the purpose of Section 264.

Glimpses of Supreme Court Rulings

57 Mangalam Publications, Kottayam vs. Commissioner of Income Tax, Kottayam

Civil Appeal Nos. 8580-8582 of 2011

Decided On: 23rd January, 2024

Reassessment — No reason to believe – Dehors the provisional balance sheet for the assessment year 1989-90 submitted before the South Indian Bank for obtaining credit (which was considered to be unreliable by CIT(A) in the earlier year), there were no other material in the possession of the Assessing Officer to come to the conclusion that income of the Assessee for the three assessment years had escaped assessment — The assessment cannot be reopened on a mere change of opinion in as much as the original assessment orders were passed after due scrutiny.

Defective return of income — A defective return cannot be regarded as an invalid return — The Assessing Officer has the discretion to intimate the Assessee about the defect(s) and it is only when the defect(s) are not rectified within the specified period that the Assessing Officer may treat the return as an invalid return. Ascertaining the defects and intimating the same to the Assessee for rectification, are within the realm of discretion of the Assessing Officer — It is for him to exercise the discretion — The burden is on the Assessing Officer — If he does not exercise the discretion, the return of income cannot be construed as a defective return.

The Assessee was a partnership firm at the relevant point of time though it had registered itself as a company since the assessment year 1994-95. The Assessee is carrying on the business of publishing newspaper, weeklies and other periodicals in several languages under the brand name “Mangalam”. Prior to the assessment year 1994-95, the status of the Assessee was that of a firm, being regularly assessed to income tax.

For the assessment year 1990-91, Assessee filed a return of income on 22nd October, 1991 showing a loss of ₹5,99,390.00. Subsequently, the Assessee filed a revised computation showing income at ₹5,63,920.00. Assessee did not file any balance sheet along with the return of income on the ground that books of account were seized by the income tax department (department) in the course of search and seizure operations on3rd December, 1995 and that those books of account were not yet returned. In the assessment proceedings, the Assessing Officer did not accept the contention of the Assessee and made an analysis of the incomings and outgoings of the Assessee for the previous year under consideration. After considering various heads of income and sale of publications, the Assessing Officer made a lump sum addition of ₹1 lakh to the disclosed income vide the assessment order dated 29th January, 1992 passed under Section 143(3) of the Act.

Likewise, for the assessment year 1991-1992, the Assessee did not file any balance sheet along with the return of income for the same reason mentioned for the assessment year 1990-1991. The return of income was filed on 22nd October, 1991 showing a loss of ₹21,66,760.00. As per the revised profit and loss account, the sale proceeds of the publications were shown at ₹8,21,24,873.00. The Assessing Officer scrutinised the net sale proceeds as per the Audit Bureau of Circulation figure and the certified Performance Audit Report. On that basis, the assessing officer accepted the sale proceeds of ₹8,21,24,873.00 as correct being in conformity with the facts and figures available in the Audit Bureau of Circulation report and the Performance Audit Report. After considering the incomings and outgoings of the relevant previous year, the Assessing Officer reworked the aforesaid figures but found that there was a deficiency of ₹29,17,931.00 in the incoming and outgoing statement which the Assessee could not explain. Accordingly, this amount was added to the total income of the Assessee. Further, the Assessee could not produce proper vouchers in respect of a number of items of expenditure. Accordingly, an addition of ₹1,50,000.00 was made to the total income of the Assessee vide the assessment order dated 29th January, 2022 passed under Section 143(3) of the Act.

For the assessment year 1992-1993 also, the Assessee filed the return of income on 7th December, 1992 showing a loss of ₹10,50,000.00. However, a revised return was filed subsequently on 28th January, 1993 showing loss of ₹44,75,212.00. Like the earlier years, Assessee did not maintain books of account and did not file the balance sheet for the same reason. However, the Assessee disclosed total sale proceeds of the weeklies at ₹7,16,95,530.00 and also advertisement receipts to the extent of ₹40 lakhs. The profit was estimated at ₹41,63,500.00 before allowing depreciation. On scrutiny of the performance certificate issued by the Audit Bureau of Circulation, the Assessing Officer observed that total sale proceeds of the weeklies after allowing sale commission came to ₹7,22,94,757.00. Following the profit percentage adopted in earlier years, the Assessing Officer estimated the income from the weeklies and other periodicals at 7.50 per cent before depreciation, adding the estimated advertisement receipts of ₹40 lakhs to the total sale receipts of ₹7,22,94,757.00. The Assessing Officer held that the total receipt from sale of weeklies and periodicals came to ₹7,62,94,757.00. The profit earned before depreciation at the rate of 7.50 per cent on the turnover came to ₹57,22,106.00. In respect of the daily newspaper, the Assessing Officer worked out the loss at ₹22,95,872.00 as against the loss of ₹41,23,500.00 claimed by the Assessee. Taking an overall view of the matter, the Assessing Officer estimated the business income of the Assessee during the assessment year 1992-1993 at ₹10,00,000.00 vide the assessment order dated 26th March, 1993 passed under Section 143(3) of the Act.

For the assessment year 1993-1994, the Assessee had submitted the profit and loss account as well as the balance sheet along with the return of income. While examining the balance sheet, the Assessing Officer noticed that the balance in the capital account of all the partners of the Assessee firm together was ₹1,85,75,455.00 as on 31st March, 1993 whereas the capital of the partners as on 31st December, 1985 was only ₹2,55,117.00. According to the Assessing Officer, none of the partners had any other source of income apart from one of the partners, Smt. Cleramma Vargese, who had a business under the name and style of “Mangalam Finance”. As the income assessed for all the years was found to be not commensurate with the increase in the capital by ₹1,83,20,338.00 (₹1,85,75,455.00 – ₹2,55,117.00) from 1985 to 1993, it was considered necessary to reassess the income of the Assessee as well as that of the partners for the assessment years 1988-1989 to 1993-1994. After obtaining the approval of the Commissioner of Income Tax, Trivandrum, notice under Section 148 of the Act was issued and served upon the Assessee on 29th March, 2000.

In respect of the assessment year 1990-1991, the Assessee informed the Assessing Officer that the return of income filed which culminated in the assessment order dated 29th January, 1992 may be considered as the return in the reassessment proceedings. The Assessing Officer took cognizance of the profit and loss account and the balance sheet filed by the Assessee before the South Indian Bank on the basis of which assessment of income for the assessment years 1988 – 1989 and 1989 – 1990 were completed. Objection of the Assessee that the aforesaid balance sheet was prepared only for the purpose of obtaining loan from the South Indian Bank and therefore could not be relied upon for income tax assessment was brushed aside. The reassessment was made on the basis of the accounts submitted to the South Indian Bank. By the reassessment order dated 21st March, 2002 passed under Section 144/147 of the Act, the Assessing Officer quantified
the total income of the Assessee at ₹29,66,910.00 thereafter order was passed allocating income among the partners.

Likewise, for the assessment year 1991-1992, the Assessing Officer passed a reassessment order dated 21st March, 2002 under Section 144/147 of the Act determining total income at ₹13,91,700.00. Following the same, allocation of income was also made amongst the partners.

In so far assessment year 1992-1993 is concerned, the Assessing Officer passed the reassessment order also on 21st March, 2002 under Section 144/147 of the Act determining the total income of the Assessee at ₹25,06,660.00. Thereafter, the allocation of income was made amongst the partners in the manner indicated in the order of reassessment.

The Assessing Officer had worked out the escaped income for the three assessment years of 1990-91, 1991-92 and 1992-93 at ₹50,96,041.00. This amount was further apportioned between the three assessment years in proportion to the sales declared by the Assessee in the aforesaid assessment years.

Against the aforesaid three reassessment orders for the assessment years 1990-91, 1991-92 and 1992-93, Assessee preferred three appeals before the first appellate authority i.e. Commissioner of Income Tax (Appeals), IV Cochin (briefly “the CIT(A)” hereinafter). Assessee raised the ground that it had disclosed all material facts necessary for completing the assessments. The assessments having been completed under Section 143(3) of the Act, the assessments could not have been reopened after expiry of four years from the end of the relevant assessment year as per the proviso to Section 147 of the Act. It was pointed out that the limitation period for the last of the three assessment years i.e. 1992-93, had expired on 31st March, 1997 whereas the notices under Section 148 of the Act were issued and served on the Assessee only on 29th March, 2000. Therefore, all the three reassessment proceedings were barred by limitation. The Assessee also argued that the alleged income escaping assessment could not be computed on an estimated basis. In the present case, the Assessing Officer had allocated the alleged escaped income for the three assessment years in proportion to the corresponding sales turnover. It was further argued that as per Section 282(2), notice under Section 148 of the Act in the case of a partnership firm was required to be made to a member of the firm. In the present case, the notices were issued to the partnership firm. Therefore, such notices could not be treated as valid.

CIT(A) rejected all the above contentions urged by the Assessee. CIT(A) relied on Section 139(9)(f) of the Act and thereafter held that the Assessee had not furnished the details as per the aforesaid provisions and therefore fell short of the requirements specified therein. Vide the common appellate order dated 26th February, 2004, CIT(A) held that, as the Assessee had failed to disclose all material facts necessary to make assessments, therefore it could not be said that the reassessment proceedings were barred by limitation in terms of the proviso toSection 147. The other two grounds raised by the Assessee were also repelled by the first appellateauthority. Thereafter, CIT(A) made a detailed examination of the factual aspect thereafter it proposed enhancement of the quantum of escaped income. Following thesame, CIT(A) enhanced the assessment by fixing the unexplained income at ₹1,44,02,560.00 for the assessment years 1987-88 to 1993-94 which was thereafter apportioned in respect of the relevant three assessment years.

Thus, as against the total escaped income of ₹50,96,040.00 for the above three assessment years as quantified by the Assessing Officer, CIT(A) enhanced and redetermined such income at ₹68,20,854.00.

The CIT(A), however, in the appellate order had noted that the Assessee had filed its balance sheet as on 31st December, 1985 while filing the return of income for the assessment year 1986-87. The next balance sheet was filed on 31st March, 1993. No balance sheet was filed in the interregnum on the ground that it could not maintain proper books of accounts as the relevant materials were seized by the department in the course of a search and seizure operation and not yet returned. CIT(A) further noted that the Assessing Officer had taken the balance sheet as on 31st March, 1989 filed by the Assessee before the South Indian Bank as the base for reconciling the accounts of the partners. It was noticed that CIT(A) in an earlier appellate order dated 26th March, 2002 for the assessment year 1989-90 in the Assessee’s own case had held that the profit and loss account and the balance sheet furnished to the South Indian Bank were not reliable. CIT(A) in the present proceedings agreed with such finding of his predecessor and held that the unexplained portion, if any, of the increase in capital and current account balance with the Assessee had to be analysed on the basis of the balance sheet filed before the Assessing Officer as on 31st December, 1985 and as on 31st March, 1993.

Aggrieved by the common appellate order passed by the CIT(A) dated 26th February, 2004, Assessee preferred three separate appeals before the Tribunal.

In the three appeals filed by the Assessee, revenue also filed cross objections.

By the common order dated 29th October, 2004, the Tribunal allowed the appeals filed by the Assessee and set aside the orders of reassessment for the three assessment years as affirmed and enhanced by the CIT(A). Tribunal held that the re-examination carried out by the Assessing Officer was not based on any fresh material or evidence. The reassessment orders could not be sustained on the basis of the balance sheet filed by the Assessee before the South Indian Bank because in an earlier appeal of the Assessee itself, CIT(A) had held that such balance sheet and profit and loss account furnished to the bank were not reliable. The original assessments were completed under Section 143(3) of the Act. Therefore, it was not possible to hold that the Assessee had not furnished necessary details for completing the assessments at the time of original assessment. In such circumstances, the Tribunal held that the case of the Assessee squarely fell within the four corners of the proviso to Section 147. Consequently, the reassessments were held to be barred by limitation, thus without jurisdiction. While allowing the appeals of the Assessee, the Tribunal dismissed the cross objections filed by the revenue.

Against the aforesaid common order of the Tribunal, the Respondent preferred three appeals before the High Court under Section 260A of the Act. All the three appeals were allowed by the High Court vide the common order dated 12th October, 2009. According to the High Court, the finding of the Tribunal that the Assessee had disclosed fully and truly all material facts necessary for completion of the original assessments was not tenable. Holding that there was no material before the Tribunal to come to the conclusion that the Assessee had disclosed fully and truly all material facts required for completion of original assessments, the High Court set aside the order of the Tribunal, and remanded the appeals back to the Tribunal to consider the appeals on merit after issuing notice to the parties.

It is against this order that the Assessee filed the special leave petitions which on leave being granted were registered as civil appeals. The related civil appeals were also filed by the partners of the Assessee firm which were dependent on the outcome of the main civil appeals.

The Supreme Court observed that from a reading of the reasons recorded by the Assessing Officer leading to formation of his belief that income of the Assessee had escaped assessment for the assessment years under consideration, the only material which came into possession of the Assessing Officer subsequently was the balance sheet of the Assessee for the assessment year 1989-90 obtained from the South Indian Bank. After obtaining this balance sheet, the Assessing Officer compared the same with the balance sheet and profit loss account of the Assessee for the assessment year 1993-94. On such comparison, the Assessing Officer noticed significant increase in the current and capital accounts of the partners of the Assessee. On that basis, he drew the inference that profit of the Assessee for the three assessment years under consideration would be significantly higher which had escaped assessment. The figure of under assessment was quantified at ₹1,69,92,728.00. Therefore, he recorded that he had reason to believe that due to omission or failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessments, incomes chargeable to tax for the three assessment years had escaped assessment.

The Supreme Court noted that the Assessee did not submit regular balance sheet and profit and loss account for the three assessment years under consideration on the ground that books of account and other materials/documents of the Assessee were seized by the department in the course of search and seizure operation, which were not yet returned to the Assessee. In the absence of such books etc., it became difficult for the Assessee to maintain year-wise regular books of account etc. However, regular books of account and profit and loss account were filed by the Assessee along with the return of income for the assessment year 1993-94.

According to the Supreme Court, the Assessing Officer culled out the figures discernible from the balance sheet for the assessment year 1989-90 obtained from the South Indian Bank, and compared the same with the balance sheet submitted by the Assessee before the Assessing Officer for the assessment year 1993-94 to arrive at the aforesaid conclusion.

The Supreme Court noted that the Assessee had filed its regular balance sheet as on 31st December, 1985 while filing the return of income for the assessment year 1986-87. The next balance sheet filed was on 31st March, 1993 for the assessment year 1993-94. No balance sheet was filed in the interregnum as according to the Assessee, it could not maintain proper books of account as the relevant materials were seized by the department in the course of a search and seizure operation and not yet returned. It was not possible for it to obtain ledger balances to be brought down for the succeeding accounting years.

As regards to the balance sheet on 31st March, 1989 filed by the Assessee before the South Indian Bank, and which was construed by the Assessing Officer to be the balance sheet of the Assessee for the assessment year 1989-90, the Supreme Court observed that the explanation of the Assessee was that it was prepared on provisional and estimate basis and was submitted before the South Indian Bank for obtaining credit and therefore could not be relied upon in assessment proceedings.

The Supreme Court noted that this balance sheet was also relied upon by the Assessing Officer in the reassessment proceedings of the Assessee for the assessment year 1989-90. In the first appellate proceedings, CIT(A) in its appellate order dated 26th March, 2002 held that such profit and loss account and the balance sheet furnished to the South Indian Bank were not reliable and had discarded the same. That being the position, according to the Supreme Court, the Assessing Officer could not have placed reliance on such a balance sheet submitted by the Assessee allegedly for the assessment year 1989-90 to the South Indian Bank for obtaining credit. Dehors such a balance sheet, there was no other material in the possession of the Assessing Officer to come to the conclusion that income of the Assessee for the three assessment years had escaped assessment.

Further, the Supreme Court observed that Section 139 places an obligation upon every person to furnish voluntarily a return of his total income if such income during the previous year exceeded the maximum amount which is not chargeable to income tax. The Assessee is under further obligation to disclose all material facts necessary for his assessment for that year fully and truly. However, the constitution bench of the Supreme Court in Calcutta Discount Company Limited, has held that while the duty of the Assessee is to disclose fully and truly all primary and relevant facts necessary for assessment, it does not extend beyond this. Once the primary facts are disclosed by the Assessee, the burden shifts onto the Assessing Officer.

According to the Supreme Court, it was not the case of the revenue that the Assessee had made a false declaration. On the basis of the “balance sheet” submitted by the Assessee before the South Indian Bank for obtaining credit which was discarded by the CIT(A) in an earlier appellate proceeding of the Assessee itself, the Assessing Officer upon a comparison of the same with a subsequent balance sheet of the Assessee for the assessment year 1993-94 which was filed by the Assessee and was on record, erroneously concluded that there was escapement of income and initiated reassessment proceedings.

According to the Supreme Court, while framing the initial assessment orders of the Assessee for the three assessment years in question, the Assessing Officer had made an independent analysis of the incomings and outgoings of the Assessee for the relevant previous years and thereafter had passed the assessment orders under Section 143(3) of the Act. An assessment order under Section 143(3) was preceded by notice, enquiry and hearing under Section 142(1), (2) and (3) as well as under Section 143(2). If that be the position and when the Assessee had not made any false declaration, it was nothing but a subsequent subjective analysis of the Assessing Officer that income of the Assessee for the three assessment years was much higher than what was assessed and therefore, had escaped assessment. This was nothing but a mere change of opinion which cannot be a ground for reopening of assessment.

The Supreme Court also dealt with the aspect of defective return. According to the Supreme Court, admittedly, the returns for the three assessment years under consideration were not accompanied by the regular books of account. Though under Sub-section (9)(f) of Section 139, such returns could have been treated as defective returns by the Assessing Officer and the Assessee intimated to remove the defect failing which the returns would have been invalid, however, the materials on record do not indicate that the Assessing Officer had issued any notice to the Assessee bringing to its notice such defect and calling upon the Assessee to rectify the defect within the period as provided under the aforesaid provision. In other words, the Assessing Officer had accepted the returns submitted by the Assessee for the three assessment years under question. The Supreme Court noted that it was the case of the Assessee that though it could not maintain and file regular books of account with the returns in the assessment proceedings for the three assessment years under consideration, nonetheless it had prepared and filed the details of accounts as well as incomings and outgoings of the Assessee etc. for each of the three assessment years which were duly verified and enquired into by the Assessing Officer in the course of the assessment proceedings which culminated in the orders of assessment under Sub-section (3) of Section 143.

According to the Supreme Court, a return filed without the regular balance sheet and profit and loss account may be a defective one but certainly not invalid. A defective return cannot be regarded as an invalid return. The Assessing Officer has the discretion to intimate the Assessee about the defect(s) and it is only when the defect(s) are not rectified within the specified period that the Assessing Officer may treat the return as an invalid return. Ascertaining the defects and intimating the same to the Assessee for rectification, are within the realm of discretion of the Assessing Officer. It is for him to exercise the discretion. The burden is on the Assessing Officer. If he does not exercise the discretion, the return of income cannot be construed as a defective return. As a matter of fact, in none of the three assessment years, the Assessing Officer had issued any declaration that the returns were defective.

The Supreme Court noted that the Assessee has asserted that though it could not file regular books of account along with the returns for the three assessment years under consideration because of seizure by the department, nonetheless the returns of income were accompanied by tentative profit and loss account and other details of income like cash flow statements, statements showing the source and application of funds reflecting the increase in the capital and current accounts of the partners of the Assessee etc., which were duly enquired into by the Assessing Officer in the assessment proceedings.

In view of above, the Supreme Court was of the view that the Tribunal was justified in coming to the conclusion that the reassessments for the three assessment years under consideration were not justified. The High Court had erred in reversing such findings of the Tribunal. Consequently, the Supreme Court set aside the common order of the High Court and restored the common order of the Tribunal dated 29th October, 2004.

Section 148A – Reassessment –Sanction – Non Application of mind.

31 ArunaSurulkar vs. Income Tax Officer,

Ward-19(2)(4),

Writ Petition No. 3503 of 2023 (Bom) (HC)

Date of Order: 22nd January, 2024

Section 148A – Reassessment –Sanction – Non Application of mind.

Petitioner challenged the notice dated 23rd March, 2022 issued under Section 148A(b) of the Act and order dated 22nd April, 2022 passed under Section 148A(d) of the Act, also the consequent notice dated 22nd April, 2022 issued under Section 148 of the Act.

Admittedly, Petitioner did not reply to the initial notice dated 23rd March, 2022 that Petitioner received under Section 148A(b) of the Act. The order passed under Section 148A(d) of the Act, whereby in paragraph 3, it is stated as under:

“3. From the details of transactions as mentioned above, it is seen that there is violation of the provisions of section 50C of the Income Tax Act, 1961. Due to noncompliance, assessee also failed to explain the transaction. Further, on verification of assessee’s return of income for AY 2018-2019, it is seen that differential amount of Rs. 26,44,500/- is not offered for taxation.”

The Petitioner contended that provisions of Section 50C of the Act would apply only to a seller and not the assessee in this case, who is the buyer of the property.
Therefore, it is the petitioner’s case that there has been total non application of mind while issuing this order under Section 148A(d) of the Act. If the sanctioning authority had read the order, he would not have granted the sanction because Section 50C of the Act does not apply to buyers.

The Revenue relies on an affidavit-in-reply filed by Mr. Manish and submits that it was a human error. The Court observed that the said Manish is incompetent to make the statement because it is not the said Manish, who had passed the impugned order. There is also nothing to indicate in the affidavit that Manish made inquiries with the officer Abhishek Kumar Sinha, who passed the impugned order seeking an explanation for reliance on Section 50C of the Act.

The Revenue further contended that the reopening was to provide an opportunity to the assessee of being heard and thus, thoroughly analyse the facts of the case with documentary evidence and the sufficiency or correctness of the material cannot be considered at the stage of reopening. The questions of fact and law are left open tobe investigated and decided by the Assessing Authority and therefore, reopening is valid. The Hon. Court did not accept this stand of Respondents in as much as the Assessing Officer before issuing a notice must have satisfied himself that what he writes makes sense. Even the Principal Commissioner, who granted sanction should have also applied his mind and satisfied himself that the order passed under Section 148A(d) of the Act was being issued correctly by applying mind. It cannot be a mechanical sanction.

The court further observed that there is nothingin the notice to explain as to how, if the transaction amount is less than the stamp duty value, there can be escapement of any income particularly in the hands of a buyer.

In the circumstances, the petition was allowed.

Section 36(1)(iii): Interest free advance to subsidiary – for the purpose of business – allowable.

30 Principal Commissioner of Income Tax-7 vs. ESSEL Infra Projects Ltd. (Former PAN India Paryatan Ltd.)

Income Tax Appeal No. 927 of 2018 (Bom.) (HC)

Date of Order: 31st January, 2024

Section 36(1)(iii): Interest free advance to subsidiary – for the purpose of business – allowable.

The Respondent-Assessee is engaged in the business of operating amusement parks, infrastructure development management and finance activities. Assessee had given a sum of ₹25 crores to PAN India Infrastructure Private Limited, its subsidiary. The Assessing Officer took the view that Assessee had diverted the interest bearing fund by giving interest-free advance and, therefore, the entire interest claim of ₹1,48,10,695 needs to be disallowed. There were also certain other disallowances made by AO.

The Commissioner of Income Tax (Appeals) held that the investment made by Assessee in its subsidiary was in the course of carrying on its business and the interest expenditure is not required to be disallowed. It was held that under Section 36(1)(iii) of the Act, interest paid in respect of capital borrowed for the purpose of business is a permissible deduction in the computation of profits and gains of business or profession and the investment made by Assessee being in the course of carrying on its business, interest expenditure is not required to be disallowed.

This was impugned by the Revenue in the appeal filed before the Income Tax Appellate Tribunal.

The Hon. High Court observed that the Tribunal, on the facts, agreed with the finding arrived at by the CIT(A) that the amount given by Assessee to its subsidiary was for the purpose of business of Assessee. The Tribunal has accepted the factual finding of the CIT(A) that Assessee being engaged in the business of ‘infrastructure development management and finance’ in addition to its ‘amusement park and water park’, has set up the subsidiary to which these funds were provided to take up the infrastructure project on behalf of Assessee. A factual finding has been arrived at that the finance provided to the wholly owned subsidiary was for its business of infrastructure and is used for that purpose. It has accepted that the nexus between the advance of funds and the business of Appellant / Assessee carried out through the subsidiary stood established and hence, no disallowance under Section 36(1)(iii) of the Act was warranted.

The Hon Court relied on the decision in case of Vaman Prestressing Co. Pvt. Ltd. vs. Additional Commissioner of Income Tax- Rg.2(3) &Ors., 2023 SCC OnLineBom. 1947.

Held, no substantial questions of law arise.

The Appeal was dismissed.

Section 11(1A) – Charitable trust – Permission from the Charity Commissioner before disposing of its property.

29 Commissioner of Income Tax (Exemption), Pune vs. Shree Ram Ashram Trust Nashik

ITXA (IT) No. 448 of 2018 (Bom) (HC)

Date of Order: 31st January, 2024

Section 11(1A) – Charitable trust – Permission from the Charity Commissioner before disposing of its property.

The Respondent-Assessee is a public charitable trust. It had entered into an agreement in 1994 with Buildforce Properties Pvt. Ltd. (“Buildforce”) to sell its property. Since, the Assessee was a trust, it needed permission from the Charity Commissioner before disposing of the property. The Charity Commissioner granted permission vide order dated 29th December, 1995, subject to certain conditions. As per the conditions imposed, the Assessee was to complete the sale within one year from the date of the order, the sale consideration of ₹6.30 crores was to be invested in fixed deposits with nationalised bank or scheduled bank or co-operative bank or in any public securities earning higher rate of interest and only the interest was to be utilized for the charitable activities of the trust. As per the Memorandum of Understanding (“MOU”) with Buildforce, symbolic possession was given to Buildforce. As per the MOU, Buildforce was to develop the property. Admittedly, a certain dispute arose between Buildforce and Assessee and a suit came to be filed being Suit No. 2395 of 1998. The suit was settled by filing ‘Consent Terms’ and an order was passed by the Hon’ble High Court on 25th July, 2006, taking the Consent Terms on record subject to appropriate directions/permissions to be granted by the Charity Commissioner. Under the Consent Terms, Assessee agreed to accept a sum of₹6.28 Crores in full and final settlement and transferred the property in favour of the nominee of Buildforce, i.e.,M/s. Dilip Estate & Town Planners Pvt. Ltd. (“Dilip Estate”). Post the order of the Hon’ble High Court, permissions were sought from the Charity Commissioner, who vide an order dated 5th April, 2007, extended the time to complete the transaction. The time to execute the conveyance deed was extended up to 31st May, 2007. A sale deed was executed on 20th April, 2007 for the sale of the property to Dilip Estates. On execution of the sale deed, sale proceeds were received by Assessee, who invested the same with Bank of Baroda and Dena Bank, both nationalized banks. During the course of hearing before the Income Tax Appellate Tribunal (“ITAT”) also the fixed deposits continued and the list was also made available to the ITAT. It was the case of Assessee that when the sale proceeds of capital assets are invested in fixed deposit, then no capital gain is to be assessed in the hands of Assessee in view of the provisions of Section 11(1A) of the Act.

As per clause (a) of Section 11(1A), where Assessee holds capital asset under trust wholly for charitable or religious purpose and the same is transferred, then where whole or any part of net consideration is utilized for acquiring another capital asset, the capital gains arising from the transfer shall be deemed to have been applied to charitable or religious purposes. Depending on whether whole or part of net consideration is so utilized, then so much of capital gains equal to the amount, if any, so exceeds the cost of asset is to be allowed as deduction. Therefore, in the hands of Assessee, where Assessee has sold the capital asset being immovable property which Assessee claims it was holding under trust wholly for charitable or religious purposes, and on its transfer,the sale proceeds are invested in long term investments with banks in FDRs, then no capital gain arises to Assessee.

The Assessing Officer did not accept this stand of Assessee because, according to him, Assessee entered into an agreement with Buildforce in 1994 and the sale deed was executed in favour of its nominee, Dilip Estates only on 20th April, 2007, i.e., after a period of almost 12 years. In this intervening period of 12 years, where the possession of the property was with Buildforce as per the MOU, Assessee was not in possession of the property. Therefore, it cannot be held that the property was being held under trust wholly for charitable or religious purposes. Therefore, Assessee has not fulfilled the requirement of Section 11(1A) of the Act. Hence, Assessee is not entitled to the benefit provided under the said Sub-section.

On appeal, the Commissioner of Income Tax (Appeals) allowed the appeal.

The limited issue that was before the ITAT in the appeal that the Revenue filed was whether Assessee was entitled to claim the benefit under Section 11(1A) of the Act. The ITAT, came to the conclusion that Assessee was entitled to claim the benefit.

On appeal the Revenue – Appellant proposed a following substantial question of law:

“Whether on the facts and circumstances of the present case and in law, the Hon’ble ITAT was correct in allowing Exemption under Section 11(1A) of the Income Tax Act in the instant case, even though the property was not held under Assessee Trust wholly for the charitable/religious purpose?”

The Hon. High court observed that admittedly, Assessee was the owner of the property and the sale deed was executed with Dilip Estates only on 20th April, 2007. Even the Charity Commissioner has accorded his permission for the sale. Once the year of sale is taken to be AY 2008-09, then admittedly, the possession of said property is deemed to have been given in the said assessment year. Once the AO has accepted the plea that transfer took place in AY 2008-09 and assessed income under long term capital gains in the hands of Assessee, the ITAT correctly concluded that it cannot be said that the possession was not transferred in AY 2008-09. Once legal possession has been handed over by Assessee, only in 2008-09, then it is presumed and accepted that the said capital asset was held by Assessee trust wholly for charitable purposes till the date of its sale.

In the circumstance, it was held that no substantial question of law arises.

Appeal of Revenue was dismissed.

Rectification of mistake — Mistake apparent from record — Exemption — Income received by non-resident for service rendered on foreign ship outside India — Not taxable in India even if credited to bank in India — Assessee mistakenly declaring in return salary received for services rendered outside India — Rejection of application for rectification — Failure to apply circular issued by CBDT — Error apparent on face of record — Orders refusing to rectify mistake set aside — Assessee entitled to exemption u/s. 10(6)(viii) — Matter remanded to AO. Appeal to Appellate Tribunal — Rectification of mistake — Failure to apply judicial precedents and circular issued by CBDT — Error apparent on face of record — Tribunal has jurisdiction to rectify.

88 Rajeev Biswas vs. UOI

[2023] 459 ITR 36 (Cal)

A.Y.: 2012-13

Date of Order: 22nd September, 2022

Ss. 10(6)(viii), 154 and 254 of ITA 1961

Rectification of mistake — Mistake apparent from record — Exemption — Income received by non-resident for service rendered on foreign ship outside India — Not taxable in India even if credited to bank in India — Assessee mistakenly declaring in return salary received for services rendered outside India — Rejection of application for rectification — Failure to apply circular issued by CBDT — Error apparent on face of record — Orders refusing to rectify mistake set aside — Assessee entitled to exemption u/s. 10(6)(viii) — Matter remanded to AO.

Appeal to Appellate Tribunal — Rectification of mistake — Failure to apply judicial precedents and circular issued by CBDT — Error apparent on face of record — Tribunal has jurisdiction to rectify.

The assessee was employed outside the Indian territory. For the A.Y. 2012-13, the return filed by the assessee was processed u/s. 143(1) of the Income-tax Act, 1961 computing the tax liability at ₹4,40,070. The Chartered Accountant of the assessee filed a petition for rectification stating that the assessee was a non-resident Indian during the period as he had to stay outside the country due to his employment, that he was outside the country for a total of 210 days during the previous year relating to the A.Y. 2012-13 and the income had been assessed without considering the assessee’s non-resident status. The request was rejected by the Deputy Commissioner (International Taxation) on the ground that there was no mistake apparent from the record.

The assessee preferred an appeal before the Commissioner (Appeals) contending that the Assessing Officer had ignored the revised return filed by the assessee where the income earned by the assessee under the head “Salary” was exempted u/s. 10(6)(viii) of the Act. The Commissioner (Appeals) dismissed the appeal. The Tribunal rejected the assessee’s further appeal on the ground that the issue pertaining to the assessee’s claim for exemption on account of salary income stated to be earned outside India was a debatable issue and the Commissioner (Appeals) was right in rejecting the appeal. The assessee preferred an application for rectification before the Tribunal which it dismissed by order dated5th January, 2018.

The Calcutta High Court allowed the appeal filed by the assessee and held as under:

“i) Circular No. 13 of 2017, dated 11th April, 2017 ([2017] 393 ITR (St.) 91) issued by the CBDT states that salary approved to a non-resident seafarer for service rendered outside India on a foreign ship shall not be included in the total income merely because the salary has been credited in the non-resident external account maintained with an Indian bank by the seafarer. In Circular No. 14 (XL-35), dated 11th April, 1995 the CBDT has directed the Officers of the Department not to take advantage of ignorance of an assessee as to his rights and stated that it is the duty of the Officers of the Department to assist the assessee in every reasonable way, particularly in the matter of claiming and securing reliefs under the Income-tax Act, 1961 and that in this regard the Officers should take the initiative in guiding an assessee where proceedings and other particulars before them indicate that some refund or relief is due to the assessee.

ii) The orders of the Tribunal and the Commissioner (Appeals) were perverse because:

(a) On the date when the Tribunal had passed the initial order dismissing the appeal of the assessee there was a binding decision of the court in Utanka Roy vs. DIT (International Taxation) [2017] 390 ITR 109 (Cal) which the Tribunal could not have ignored. The Tribunal having ignored it there was an error which was apparent on the face of the record. The Tribunal ought to have exercised its power when the rectification application was filed by the assessee but had erroneously rejected it. Therefore, the said order dated 5th January, 2018 also suffered from perversity.

(b) The Assessing Officer failed to note that the assessee was an individual and the return of income was filed by the chartered accountant and the chartered accountant on going through the facts found the mistake which had been committed and immediately filed the revised return which has been duly acknowledged by the Department. Thereafter, the rectification application was filedwhich was dealt with by the Deputy Commissioner of Income-tax, International Taxation which was also rejected. In our considered view the Departmentcould have taken a more reasonable stand, more particularly when the law on the subject is in favour of the assessee.

(c) The Assessing Officer and the Commissioner (Appeals) had ignored Circular No. 13 of 2017, dated 11th April, 2017 and Circular No. 14 (XL-35) dated 11th April, 1995 issued by the CBDT.

iii) The initial order and the order in the miscellaneous application passed by the Tribunal, the orders passed by the Commissioner (Appeals), the Deputy Commissioner (International Taxation), the order of rejection of the application under section 154 passed by the Centralised Processing Centre were quashed. The Assessing Officer was to review the assessment in accordance with law and Circular No. 13 of 2017, dated 11th April, 2017 issued by the Central Board of Direct Taxes and grant relief under section 10(6)(viii) by excluding the income received abroad by the assessee.”

Recovery of tax — Stay of demand pending appeal before CIT(A) — Discretion must be exercised in judicious manner — AO not bound by Departmental instructions.

87 Sudarshan Reddy Kottur vs. ITO

[2023] 458 ITR 750 (Telangana)

A.Y.: 2017-18

Date of Order: 30th January, 2023

S. 220(6) of ITA 1961

Recovery of tax — Stay of demand pending appeal before CIT(A) — Discretion must be exercised in judicious manner — AO not bound by Departmental instructions.

Assesee is an individual. For the A.Y. 2017-18, the assessee had filed return of income on 30th October, 2017 declaring total income of ₹15,02,400. By an order dated 30th March, 2022 passed u/s. 147 r.w.s. 144B of the Income-tax Act, 1961, the Assessing Officer determined the total income at ₹24,89,27,611 and raised the demand. The assessee filed an appeal before the CIT(A) and made an application u/s. 220(6) for stay of demand before the Assessing Officer. By the order dated 16th January, 2023, the Assessing Officer directed the assessee to pay 20 per cent of the demand on or before 25th January, 2023, but at the same time rejected the application for stay of demand.

The Telangana High Court allowed the writ petition filed by the assessee challenging the order and held as under:

“i) When the Income-tax authority exercises jurisdiction u/s. 220(6) of the Income-tax Act, 1961 he exercises quasi-judicial powers. While exercising quasi-judicial powers, the authority is not bound or confined by Departmental instructions.

ii) From a perusal of the order dated 16th January, 2023, it could be seen that the Income-tax Officer had followed instructions of the CBDT dated 21st March, 1996 to the effect that where an outstanding demand was disputed before the appellate authority, the assessee had to pay 20 per cent of the disputed demand. Accordingly, the assessee was directed to pay 20 per cent of the outstanding demand. There had been no application of mind by the Assessing Officer. The order therefore was not valid.

iii) That being the position, we set aside the order dated 16th January, 2023 and remand the matter back to the Assessing Officer for passing a fresh order in accordance with law after giving due opportunity of hearing to the assessee. This shall be done within a period of six (6) weeks from the date of receipt of a copy of this order. Till the aforesaid period of six (6) weeks, the respondents are directed not to take coercive steps for realising the outstanding demand for the A.Y. 2017-18.”

Reassessment — Notice — New procedure — Effect of decision of Supreme Court in Ashish Agarwal — Liberty available to matters at notice stage — Liberty granted by High Court in assessee’s petition against notice under unamended provision prior to Supreme Court decision — AO issuing second notice but allowing proceedings to lapse — Department cannot proceed for third time invoking liberty granted by Supreme Court — Notices and proceedings quashed.

86 Vellore Institute of Technology vs. ACIT(Exemption)

[2023] 459 ITR 499 (Mad)

A.Y.: 2015-16

Date of Order: 30th June, 2023

Ss. 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Notice — New procedure — Effect of decision of Supreme Court in Ashish Agarwal — Liberty available to matters at notice stage — Liberty granted by High Court in assessee’s petition against notice under unamended provision prior to Supreme Court decision — AO issuing second notice but allowing proceedings to lapse — Department cannot proceed for third time invoking liberty granted by Supreme Court — Notices and proceedings quashed.

For the A.Y. 2015-16, the Assessing Officer issued notice against the assessee under the unamended provisions of section 148 for reopening the assessment u/s. 147 of the Income-tax Act, 1961. Based on the liberty granted by the court on a writ petition against this notice, the Assessing Officer issued a second notice u/s. 148A(b) which included the details of the information on the basis of which the allegation of escapement of income was made. An order rejecting the objections of the assessee u/s. 148A(d) was passed and notice u/s. 148 was issued. On a writ petition challenging the second notice, the court granted an interim order which stated that while the second notice u/s. 148 could proceed with any decision taken by the Department would be subject to the result of the writ petition. Pursuant to that no notice u/s. 143(2) was issued. Thereafter, based on the decision of the Supreme Court dated 4th May, 2022 in UOI vs. Ashish Agarwal [2022] 444 ITR 1 (SC), the Assessing Officer issued a third notice dated 2nd June, 2022 u/s. 148A(b) and rejected the objections filed by the assessee in his order u/s. 148A(d) stating that the second notice dated 18th April, 2022 was dropped and the first notice u/s. 148 dated 12th April, 2021 which was the subject-matter of the first writ petition filed by the assessee was revived.

The Madras High Court allowed the writ petition filed by the assessee and held as under:

“i) The distinction between the erstwhile and the new system for reassessment of income that has escaped assessment u/s. 147 of the Income-tax Act, 1961 is that, under the old procedure it was necessary for the Assessing Officer to record reasons on the basis of which a notice u/s. 148 would be issued. The reasons formed the substratum of the proceedings for reassessment. In the new procedure obviating the necessity to record reasons and furnish them to the assessee upon request, the reasons are to be part of the initial notice u/s. 148A(b) and a response thereto is solicited. After hearing the assessee, an order is to be passed u/s. 148A(d) for issuance of notice u/s. 148 after considering the objections raised.

ii) There was no justification for the Department either in law or on fact, to subject the assessee to a third round of reassessment proceedings u/s. 147 merely by invoking the liberty granted in UOI vs. Ashish Agarwal decided on 4th May, 2022. The Department was bound by its decision in full when it dropped the second round of proceedings pursuant to the order of the High Court in the writ petition against the second notice issued under the new procedure. After the passing of the order by the High Court in respect of the second notice, proceedings had been commenced afresh by issuance of a notice u/s. 148A(b) and those proceedings had culminated by issuance of notice u/s. 148 dated 18th April, 2022 pursuant to which no notice u/s. 143(2) had been issued and the proceedings lapsed. The explanation tendered for issuance of a notice under section 148A(b) for the third time on June 2, 2022 was fallacious and unacceptable as the liberty granted by the Supreme Court in its decision dated 4th May, 2022 would be available only in those situations where the matters stood at an initial or preliminary stage of notice for reassessment and not where the proceedings had been carried forward to the stage of passing of order under section 148A(d) and issuance of notice under section 148 .

iii) The Department’s submission that the proceedings initiated pursuant to the first notice stood revived was also factually incorrect as there were material differences between the reasons in the first notice and those in notice u/s. 148A(b) dated 2nd June, 2022. If the third round of proceedings was only a revival of the earlier proceedings, the reasons ought to have been identical but they were not. The notices and consequential proceedings were quashed.”

Reassessment — Initial notice — Order u/s. 148A(d) for issue of notice — Notice u/s. 148 — Validity — Notice based on information from insight portal that assessee had purchased property — Assessee disclosing all details including bank statement in response to notice u/s. 142(1) and duly examined by AO in original assessment — Notices and order for issue of notice set aside.

85 Urban Homes Realty vs. UOI

[2023] 459 ITR 96 (Bom)

A.Y.: 2016-17

Date of Order: 4th July, 2023

Ss. 142(1), 143(3), 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Initial notice — Order u/s. 148A(d) for issue of notice — Notice u/s. 148 — Validity — Notice based on information from insight portal that assessee had purchased property — Assessee disclosing all details including bank statement in response to notice u/s. 142(1) and duly examined by AO in original assessment — Notices and order for issue of notice set aside.

The assessee was a property developer. For the A.Y. 2016-17, its case was selected for scrutiny for various reasons, one of which was large investment in property. The Assessing Officer stated in his order u/s. 143(3) of the Income-tax Act, 1961 that during the course of assessment proceedings the assessee submitted the details as called for and such details were examined. Thereafter, the Assessing Officer issued an initial notice u/s. 148A(b) on the basis of information from the Insight portal that the assessee had made an investment in a property on account of which income had escaped assessment. The Assessing Officer rejected the assessee’s explanation that all the details in respect of the purchase of the property in question were disclosed in the original scrutiny assessment and passed an order u/s. 148A(d) for issue of notice u/s. 148 and also issued a notice u/s. 148 pursuant thereto.

The Bombay High Court allowed the writ petition filed by the assessee and held as under:

“i) The findings of the Assessing Officer that the issue covered in the scrutiny assessment u/s. 143(3) was not related to verification of source in respect of purchase of property, that the assessee did not furnish relevant bank statement evidencing the payments made for purchase of the property and did not explain the source during the course of issuance of notice u/s. 148A(b) were incorrect. In the notice u/s. 142(1) issued on 24th August, 2018, the assessee was expressly called upon to submit all the details of all the properties purchased with copies of the purchase deed and a copy of statement of the bank account from which the payment was made and the assessee had in its response furnished all the details called for. In his order u/s. 143(3) the Assessing Officer had specifically stated that during the course of assessment proceedings the assessee had submitted various details as called for and that those details were examined and that the data had been verified from the details submitted by the assessee. Therefore, the Assessing Officer was certainly satisfied with all the details provided by the assessee.

ii) In the reply to the notice issued u/s. 148A(b) also, the assessee had given details of the consideration paid for the property and the source of funds. Therefore, the Assessing Officer’s stating in his order u/s. 148A(d) that the assessee did not provide the details or explaining the source was incorrect. Accordingly, the initial notice u/s. 148A(b), the subsequent order u/s. 148A(d) and the consequential notice u/s. 148 were quashed and set aside.”

Reassessment — New procedure — Information that income has escaped assessment — Objection from Comptroller and Auditor General required —Internal audit objection cannot form the basis of reassessment — Reassessment based on change of opinion — Reassessment is impermissible in law.

84 Hasmukh Estates Pvt. Ltd. vs. ACIT

[2023] 459 ITR 524 (Bom)

A.Y.: 2015-16

Date of Order: 8th November, 2023

Ss. 147, 148, 148A(b), 148A(d) and 151 of ITA 1961

Reassessment — New procedure — Information that income has escaped assessment — Objection from Comptroller and Auditor General required —Internal audit objection cannot form the basis of reassessment — Reassessment based on change of opinion — Reassessment is impermissible in law.

The assessee sold a plot of land to one RNL by a registered agreement to sell dated 7th October, 2011 for a consideration of ₹18 crores, the stamp duty value of which was ₹16.5 crores. Due to non-fulfilment of certain obligations on the part of the assessee, the consideration was reduced to ₹12 crores. The case was selected for scrutiny and the assessment order was passed on 26th December, 2017, accepting the consideration of ₹12 crores. The submission of the assessee to the Assessing Officer in the original assessment proceedings in respect of the sale of land was that section 50C of the Act was not applicable as the sale consideration of ₹18 crores was higher than the stamp valuation of ₹16.50 crores.

Thereafter, an audit memo dated 29th March, 2019 was received by the Assessing Officer raising an objection that Petitioner has shown lower amount of sale consideration than value adopted by the Stamp Duty Authority thus, inviting the applicability of Section 50C of the Act to the transaction. Subsequently, the assessee’s case was reopened to tax the difference between the stamp duty value and the sale consideration u/s. 50C of the Act.

The assessee filed a writ petition challenging the reopening of the assessment. The Bombay High Court allowed the petition, quashed the reassessment proceedings and held as follows:

“i) The admitted facts clearly indicated that the information on the basis of which the Assessing Officer issued notice alleging that there was “information” that suggested escapement of income was an internal audit objection. Information is explained in section 148 of the Act to mean “any objection raised by the Comptroller and Auditor General of India” and no one else. Prima facie the information which formed the basis of reopening itself did not fall within the meaning of the term “information” under Explanation 1 to section 148 of the Income-tax Act, 1961, and hence, the reopening was not permissible as it clearly fell within the purview of a “change of opinion” which was impermissible in law.

ii) Consequently, dehors any audit objection by the Comptroller and Auditor General, a view deviating from that which was already taken during the course of issuing original assessment order was nothing but a “change of opinion” which was impermissible under the provisions of the Act.”

Reassessment — Notice for reassessment after 1st April, 2021 — All relevant information provided by assessee prior to original assessment order — AO has no power to review his own order — Query raised by AO answered and accepted during original assessment — Reopening of assessment on mere change of opinion not permissible.

83 Knight Riders Sports Pvt. Ltd. vs. ACIT

[2023] 459 ITR 16 (Bom)

A.Y.: 2016-17

Date of Order: 26th September, 2023

Ss. 142(1), 143(3), 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Notice for reassessment after 1st April, 2021 — All relevant information provided by assessee prior to original assessment order — AO has no power to review his own order — Query raised by AO answered and accepted during original assessment — Reopening of assessment on mere change of opinion not permissible.

The assessee-company was engaged in the business of operating and running a cricket team in the Indian Premier League. During the assessment proceedings for the A.Y. 2016-17, the Assessing Officer issued various notices u/s. 142(1) of the Income-tax Act, 1961, raising queries, inter alia, regarding foreign payments made and the assessee provided the details. An assessment order u/s. 143(3) of the Act was passed. Thereafter the assessee received notice dated 17th March, 2023, u/s. 148A(b) of the Act alleging that the audit scrutiny of assessment records disclosed payments of consultancy and team management fees to a foreign company and that income was chargeable to tax for the A.Y. 2016-17, had escaped assessment. The Assessing Officer rejected the objections raised by the assessee and passed an order u/s. 148A(d) of the Act, followed by a reassessment notice u/s. 148 of the Act.

The Bombay High Court allowed the writ petition filed by the assessee and held as under:

“i) Reopening of the assessment was not permissible based on change of opinions as the Assessing Officer does not have any power to review his own assessment when during the original assessment the assessee had provided all the relevant information which was considered by the Assessing Officer before passing the assessment order u/s. 143(3) of the Act. Once a query had been raised during the assessment and query had been answered and accepted by the Assessing Officer while passing the assessment order, it followed that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. This would apply even if the assessment order had not specifically dealt with that issue.

ii) The reopening of the assessment was merely on the basis of change of opinion. This change of opinion did not constitute justification to believe that income chargeable to tax had escaped assessment. The notice dated 17th March, 2023, the order dated 30th March, 2023 and the reassessment notice dated 30th March, 2023, were quashed and set aside.”

Offences and Prosecution — Wilful attempt to evade payment of tax — Self assessment tax shown in the return of income but paid late — Penalty levied for delayed payment of tax — Criminal intent of assessee essential — Nothing on record to show deliberate and wilful default of evasion of tax — Complaint and summoning order quashed.

82 Health Bio Tech Ltd. vs. DCIT

[2023] 459 ITR 349 (P&H.)

A.Y.: 2011-12

Date of Order: 14th September, 2023

Ss. 276C(2) and 278B of ITA 1961

Offences and Prosecution — Wilful attempt to evade payment of tax — Self assessment tax shown in the return of income but paid late — Penalty levied for delayed payment of tax — Criminal intent of assessee essential — Nothing on record to show deliberate and wilful default of evasion of tax — Complaint and summoning order quashed.

The assessee, a registered firm, filed its return of income for A.Y. 2011-12 wherein aggregate amount of tax was shown at ₹1,36,20,887. Subsequently, the return of income was revised and the aggregate amount of tax was shown at ₹1,50,81,728. The tax was not paid in time but was paid late. The Department filed a complaint for offence u/s. 276C(2) of the Income-tax Act, 1961 of wilful attempt to evade payment of tax. The trial court admitted the complaint and passed an order summoning the assessee as accused.

The Punjab and Haryana High Court allowed the revision petition filed by the assessee and held as follows:

“i) It was apparently clear from the facts on record, that there was no attempted evasion on the part of the assessee-company. There was undoubtedly delayed payment, but for that penalty had already been levied. While maintaining both these proceedings simultaneously, the one fact that must be present there, that there was or has been a criminal intent in the mind of the accused right from the beginning.

ii) The income tax was self-assessed and payment was also made by the assessee-company, though belatedly. Thus, the question of evasion of tax did not arise in the present facts and circumstances. The facts and circumstances of the case did not reveal that there was a deliberate and wilful default of evasion of tax on the part of the assessee. The complaint and all the consequential proceedings arising therefrom, including the summoning order were quashed.”

Offences and prosecution — Failure to deposit tax deducted at source before due date — Sanction for prosecution — Reasonable cause — Tax deducted at source — Delay to deposit tax deducted at source due to prevalence of pandemic — Assessee depositing tax deducted at source in phased manner with interest though after due date — Reasonable cause for failure — Prosecution orders set aside.

81 D. N. Homes Pvt. Ltd. vs. UOI

[2023] 459 ITR 211 (Orissa)

A.Y.: 2021-22

Date of Order: 13th October, 2023

Ss. 2(35), 276B, 278AA and 278B of the IT Act

Offences and prosecution — Failure to deposit tax deducted at source before due date — Sanction for prosecution — Reasonable cause — Tax deducted at source — Delay to deposit tax deducted at source due to prevalence of pandemic — Assessee depositing tax deducted at source in phased manner with interest though after due date — Reasonable cause for failure — Prosecution orders set aside.

The assessee is a private limited company. As per the TRACES, the assessee deducted tax of ₹2,58,29,945 for F.Y. 2020-21 relevant to A.Y. 2021-22 which was not deposited with the Central Government before the due date. However, the amount was deposited in a phased manner with delay of 31 days to 214 days. The Department filed a complaint against the assessee for an offence u/s. 276B of the Income-tax Act, 1961. The lower Court took cognizance of the offence.

The Orissa High Court allowed the revision petition filed by the assessee and held as under:

“i) The expression “reasonable cause” used in section 278AA of the Income-tax Act, 1961 may not be “sufficient cause” but would have a wider connotation than the expression “sufficient cause”. Therefore, “reasonable cause” for not visiting a person with the penal consequences would have to be considered liberally based on facts of each individual case. The issue of there being a reasonable cause or not is a question of fact and inference of law can be drawn.

ii) The legislative intent would be well discernible on consideration of the provisions of section 201 and section 221 which state that penalty is not leviable when the company proves that the default was for “good and sufficient reasons”, whereas, the expression used in section 278AA is “reasonable cause”. The Legislature has carefully and intentionally used these different expressions in the situations envisaged under those provisions. The intent and purport being to mitigate the hardship that may be caused to genuine and bona fide transactions where the assessee was prevented by cause that is reasonable. Therefore, the court must lean for an interpretation which is consistent with the “object, good sense and fairness” thereby eschew the others which render the provision oppressive and unjust, as otherwise, the very intent of the Legislature would be frustrated.

iii) The expression “reasonable cause” in section 278AA qualifies the penal provision laid under section 276B. Both provisions accordingly are to be read together to ascertain the attractability of the penal provision. In a criminal proceeding by merely showing reasonable cause, an accused can be exonerated and for showing that reasonable cause, the standard of proof of suchfact in support thereof is lighter than the proof in support of good and sufficient reason. A reasonable cause may not necessarily be a good and sufficient reason.

iv) The assessee and its principal officer had deposited the entire tax deducted at source with interest for the delayed deposit before the time of consideration of the matter as to launching of the prosecution u/s. 279(1)of the 1961 Act. The tax deducted at source with interest had been accepted and gone to the State exchequer when by then no loss to the Revenue stood to be viewed.

v) The point for consideration by the authority was not to cull out the justification for delay in depositing the tax deducted at source but was whether to launch the prosecution. Hence, the order u/s. 279(1) passed by the Commissioner (TDS) suffered from the vice of non-consideration of the admitted factual settings as to the existence of reasonable cause for the failure to deposit the tax deducted at source and the complaint was vitiated since the failure was on account of the reasonable cause of the prevalence of covid-19 pandemic.

vi) The order of sanction having been passed without due application of mind and in a mechanical manner and putting the blame upon the assessee and its principal officer for not filing any exemption or relaxation notifications or circulars stood vitiated. Hence, the trial court ought not to have taken cognizance of the offences u/ss. 276B, 2(35) and 278B when even the latter two had no penal provisions and its orders were bad in law and, therefore, set aside.”

Fees for technical services — Make available — Meaning of — Recipient of services should apply technology — Services offered to Indian affiliates — Tribunal holding services to Indian affiliates not fees for technical services as make available test not fulfilled — Agreement between assessee and its affiliate effective for long period — Recipient of services unable to provide same service without recourse to service provider — Not fees for technical services: DTAA between India and Singapore s. 12(4)(b).

80 CIT (International Taxation) vs. Bio-Rad Laboratories (Singapore) Pte. Ltd.

[2023] 459 ITR 5 (Del.)

A.Y.: 2019-20

Date of Order: 3rd October, 2023

S. 260A of ITA 1961

Fees for technical services — Make available — Meaning of — Recipient of services should apply technology — Services offered to Indian affiliates — Tribunal holding services to Indian affiliates not fees for technical services as make available test not fulfilled — Agreement between assessee and its affiliate effective for long period — Recipient of services unable to provide same service without recourse to service provider — Not fees for technical services: DTAA between India and Singapore s. 12(4)(b).

The Tribunal held that the services offered by the assessee to its Indian affiliates did not come within the purview of fees for technical services, as reflected in article 12(4)(b) of the DTAA between India and Singapore, as they did not fulfil the criteria of “make available” test.

The Delhi High Court dismissed the appeal filed by the Department and held as under:

“i) According to the Tribunal, the agreement between the assessee and its affiliate had been effective from 1st January, 2010, and it had run for a long period. In order to bring the services in question within the ambit of fees for technical services under the Double Taxation Avoidance Agreement, the services would have to satisfy the ”make available” test and such services should enable the person acquiring the services to apply the technology contained therein. The facts on record showed that the recipient of the services was not enabled to provide the same service without recourse to the service provider.

ii) The analysis and conclusion arrived at by the Tribunal were correct.”

Section 92C, read with section 92B, of the Income-tax Act, 1961 — In light of peculiar facts, TPO was correct in recharacterizing part consideration of merger in form of cash and CCD as income. Cash payment was to be treated as deemed loan and ALP for CCD interest was determined at Nil.

14 Dimexon Diamonds Ltd vs. ACIT

[2024] 159 taxmann.com 118 (Mumbai – Trib.)

ITA No: 2429/Mum/2022

A.Ys.: 2018–19

Date of Order: 30th January, 2024

Section 92C, read with section 92B, of the Income-tax Act, 1961 — In light of peculiar facts, TPO was correct in recharacterizing part consideration of merger in form of cash and CCD as income. Cash payment was to be treated as deemed loan and ALP for CCD interest was determined at Nil.

FACTS

DIHPL, an Indian company, was a wholly owned subsidiary of DIHBV, a Netherlands company. Assessee, another Indian company, was a wholly owned subsidiary of DIHPL. DIHPL and the assessee undertook a reverse merger whereby DIHPL merged into the assessee. Assessee discharged following consideration to DIHBV, which held the entire equity capital of DIHPL.

In the transfer pricing report, the assessee disclosed the aforesaid transaction as an international transaction. However, it was stated that the transaction was not required to be benchmarked since pursuant to the implementation of the said scheme of amalgamation, the assessee had neither generated any income nor incurred any expenditure. Without prejudice, the assessee adopted ‘other method’ and placed a third party valuer report to justify consideration.

TPO rejected the valuation report. In particular, TPO: (a) treated cash payment as loan and imputed interest thereon; (b) Disregarded issuance of CCD; and (c) treated ALP of interest as Nil. DRP upheld the order of AO.

Being aggrieved, the assessee appeal to ITAT.

HELD

• Amalgamation results in business restructuring and falls within the definition of international transaction. Each mode of consideration i.e. equity, cash and CCD needs to be examined separately. No adjustment was made by TPO in respect of issuance of equity shares.

• During NCLT proceedings, the assessee submittedthat it would comply with applicable Income Tax law. Thus, even if the scheme is approved by NCLT, the tax department had not waived its right to examine the issue arising out of the scheme of amalgamation. Further, approval of the scheme and computation of ALP are different aspects.

• The valuation report stated that management had decided to give cash consideration to DIHBV as excess cash was available with the assessee. Thus, the valuation report was not prepared scientifically as consideration was determined by management of companies.

• DIHBV was holding the assessee and the other two subsidiaries through DIHPL, After the merger, DIHBV directly held 100 per cent shares of the assessee and the other two subsidiaries through the assessee. Thus, a merger transaction is a mere restatement of the accounts of the subsidiary companies without the actual transfer of any asset and liability by DIHBV.

• ITAT upheld the findings of lower authorities that in substance the transaction is really a relocation of shares and insofar as the parent holding company is concerned nothing has changed in substance.

• Considering the finding in the valuation report that management had excess cash, TPO was correct in holding that the issuance of CCDs and payment of cash of ₹100 crore represents excessive payment.

Section 92C, read with section 92B, of the Income-tax Act, 1961 — Interest-free loan is an international transaction. The nature of advances, whether it is quasi capital in nature or not, must be seen at the time of granting of advance/loan to the subsidiary.

13 Intas Pharmaceuticals Ltd vs. ACIT

[2024] 159 taxmann.com 429

(Ahmedabad —Trib.)

ITA No: 1334/AHD/2017 & Others

A.Ys.: 2009–10 to 2011–12

Date of Order: 31st January, 2024

Section 92C, read with section 92B, of the Income-tax Act, 1961 — Interest-free loan is an international transaction. The nature of advances, whether it is quasi capital in nature or not, must be seen at the time of granting of advance/loan to the subsidiary.

FACTS

Assessee is engaged in the business of manufacturing and trading of pharmaceuticals. It advanced the amount to its AEs for registration of the assessee’s product in overseas territories. Assessee had the option to convert advances into equity. Hence, the assessee considered that the advances were in the nature of quasi capital. Therefore, the assessee did not charge Interest on the same. In the subsequent year, the assessee converted loans given to three of its AEs into equity.

In the course of the assessment, AO made an upward adjustment on account of interest on loans and advances.

In appeal, CIT(A) gave partial relief in respect of advances given to three of the AEs whose loans were converted into equity in the subsequent year. In respect of other foreign AEs, CIT(A) confirmed the upward adjustment on the grounds that loans and advances given to them were not converted into equity.

Being aggrieved, both parties appeal to ITAT.

HELD

Tribunal confirmed the decision of AO and affirmed upward addition for all the loans.

  • In the case of quasi capital, there is an option to convert the loan to equity, however, in the case of a loan, the consideration is received in terms of interest and return of principal amount after a pre-decided deferred period1.

 

  • The nature of advances, whether it is quasi capital in nature or not, must be seen at the time of granting of advance/loan to the subsidiary.
  • In the instant facts, there was nothing to suggest that at the time of advancing the loans to the AEs, such loans were in the nature of quasi-capital. The fact that in the subsequent year, such loans were converted into equity (at the option of the assessee) would not alter the nature of such advance to quasi-capital.

 

  • Following considerations were irrelevant for deciding the issue of charging interest on loan:
  • Advances made were out of commercial expediency.
  • Advanced by the assessee to its AEs are inextricably linked with export sale of finished goods or such advances have yielded the economic benefits to the assessee including increase in export turnover.
  • Advances were given from interest free funds available with the assessee.

____________________________________________

1 Bialkhia Holdings Pvt. Ltd. vs. Additional Commissioner of Income Tax 115 taxmann.com 230 (Surat Tribunal)

If the original return of income is filed within the due date under section 139(1), the carry forward of loss claimed in the revised return filed after the due date under section 139(1) cannot be denied.

63 Khadi Grammodhyog Prathisthan vs. CPC

[2024] 108 ITR(T) 94 (Jodhpur – Trib.)

ITA NO.: 87 (JODH.) OF 2023

A.Y.: 2019-20

Date of Order: 31st July, 2023

If the original return of income is filed within the due date under section 139(1), the carry forward of loss claimed in the revised return filed after the due date under section 139(1) cannot be denied.

FACTS

The assessee filed its original return of income for the assessment year 2019–20 on 30th October, 2019. Thereafter, the assessee revised the return on 15th January, 2020, which was considered by the CPC as the original return and accordingly, it denied the current year loss of ₹3,51,811. Aggrieved by the intimation, the assessee filed an appeal before the CIT(A).

The CIT(A) considered the revised return filed on15th January, 2020 as the original return and that it was filed after the due date u/s 139(1) of the Act which was 31st October, 2019. The CIT(A) sustained the intimation u/s 143(1) and denied the carry forward of current-year losses. The assessee then filed an appeal before the ITAT.

HELD

The ITAT observed that the apple of discord in this appeal was that the assessee had filed its original return of income on 30th October, 2019 which was within the extended due date of filing the return of income u/s 139(1). Thereafter, the assessee revised the return of income on 15th January, 2020 which the CPC considered as an original return filed beyond the due date u/s 139(1) and thereby denied the current year loss of ₹3,51,811.

The ITAT held that the return filed on 15th January, 2020 was not the original return but was a revised one and therefore, the denial of loss was not correct based on the set of facts and evidence available on records. The appeal of the assessee was allowed.

Sec. 271B r.w. Sec. 44AA, 44AB and Sec. 271A: Where Penalty u/s 271A is levied for not maintaining books of accounts u/s 44AA, the assessee could not further be saddled with penalty u/s 271B for failure to get books of accounts, which were not maintained, audited u/s 44AB.

62 Santosh Jain vs. ITO

[2023] 108 ITR(T) 636 (Raipur – Trib.)

ITA NO.: 143, 145 & 147 (RPR) OF 2023

A.Y.: 1993–94 to 1995–96

Date of Order: 24th July 2023

Sec. 271B r.w. Sec. 44AA, 44AB and Sec. 271A: Where Penalty u/s 271A is levied for not maintaining books of accounts u/s 44AA, the assessee could not further be saddled with penalty u/s 271B for failure to get books of accounts, which were not maintained, audited u/s 44AB.

FACTS

The AO imposed the penalties upon the assessee u/s 271A for failure to maintain his books of account and other documents as required u/s 44AA and u/s 271B for failure to get his books of account audited as per provisions of section 44AB.

The assessee filed an appeal before the CIT(A) against the penalty order u/s 271B dated 27th July, 2015 on the averment that as the assessee had been penalized for failure on his part to maintain books of account u/s 271A, the AO was divested from further saddling him with a penalty for getting such non-existing books of accounts audited as per the mandate of law. The CIT(A) upheld the view taken by the AO. Aggrieved, the assessee filed an appeal before the ITAT.

HELD

The ITAT followed the judgment of the Hon’ble High Court of Allahabad in the case of S.K Gupta & Co. [2010] 322 ITR 86 wherein it was observed that the requirement of getting the books of account audited could arise only where the books of account are maintained. It was further observed that if for some reason the assessee had not maintained books of account, then the appropriate provision under which penalty proceedings could be initiated was section 271A of the Act. Accordingly, the ITAT allowed the assessee’s appeal and deleted the penalty levied u/s 271B.

Sec. 68: Where assessee, engaged in financial activities, and the records revealed that the credit entries were repayments of loans, and the third party was not a stranger entity and transactions were transparent and had been found to be routed through banking channel and reported in the return of income by the assessee as well as a third party, addition made under section 68 was to be deleted.

61 ACIT vs. Evermore Stock Brokers (P.) Ltd

[2023] 108 ITR(T) 13 (Delhi – Trib.)

ITA NO.: 5152 (DELHI) OF 2018

A.Y.: 2015–16

Date of Order: 19th September, 2023

Sec. 68: Where assessee, engaged in financial activities, and the records revealed that the credit entries were repayments of loans, and the third party was not a stranger entity and transactions were transparent and had been found to be routed through banking channel and reported in the return of income by the assessee as well as a third party, addition made under section 68 was to be deleted.

FACTS

The assessee was engaged in investments and financial activities and had filed its return of income on 29th September, 2015 declaring total income of ₹96,19,580 for AY 2015–16. The case was selected for limited scrutiny to verify the genuineness of the amount received of ₹47,72,95,676 from M/s. Pioneer Fincon Services Pvt. Ltd. [PFSPL].

The assessee had asserted that the funds were advanced to PFSPL with a view to earn interest on idle funds, rather than obtaining loans and the credit entries appearing in the ledger account of the assessee denote a mere return of pre-existing loans advanced. In the process of such advance of its funds, the assessee also earned the interest of ₹2,39,640 from transactions carried with PFSPL.

To discharge its onus to prove the genuineness of the financial transactions, the assessee submitted the following documents:

i. Assessee’s books of accounts

ii. ledger account of PFSPL as appearing in its books

iii. financial statement of PFSPL

iv. extract of bank statements of both parties to the transaction

The AO, however, alleged that the financial statement of PFSPL does not inspire much confidence in its creditworthiness. The AO issued the summons u/s 131 in the name of the Principal Officer of PFSPL. Shri Sagar Ramdas Bomble attended and submitted that the entity namely PFSPL has been stricken off from the records of the Registrar of Companies and recorded a statement on oath. The AO ultimately concluded that PFSPL is a mere paper company which was used only to route money to the assessee. The AO accordingly considered an amount of R47,72,95,676 as unexplained credit and added the same to the total income of the assessee.

Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) observed that the assessee was never required to explain the sources of funds in the bank account of PFSPL. The CIT(A) observed from the recorded statement of Shri Sagar Ramdas Bomble that PFSPL took a loan from the assessee and repaid the same to the assessee within the financial year along with Interest. Receiving interest by the assessee from PFSPL was an indication that the loans were given by the assessee and not vice versa. The CIT(A) was satisfied that the identity of PFSPL was established as it was regularly filing ROI, genuineness of the transactions stands proved by the fact that all transactions were done through banking channels, the account was squared up during the same year and PFSPL paid interest on such transactions to the assessee while deducting tax at source and creditworthiness cannot be judged only from the site of its balance sheet at the year-end. The CIT(A) allowed the appeal and deleted the addition.

Aggrieved by the order, the revenue filed an appeal before the ITAT.

HELD

The ITAT observed that the AO failed to understandthat firstly, the credits represented the repayment of the loan advanced by the assessee and secondly, the outstanding at any point in time was only ₹2.06 crore. The AO had made high-pitched additions onmisplaced assumptions of facts. The transactions were carried out through a banking channel and both the assessee as well as the borrower PFSPL, were regularly assessed to tax. The so-called loans were ultimately repaid by PFSPL and there was no outstanding at the end of the year.

The ITAT observed that the order of the CIT(A) clearly brings out the fact that PFSPL was not a stranger entity to the assessee. PFSPL had availed loans from the assessee on commercial considerations, and the interest paid had been subjected to deduction of tax at source. The presence of the Accountant and CFO of the erstwhile PFSPL reflected cooperation of the borrower with the Revenue Authorities. The ITAT also observed that the repayment and squaring up of loans was an overriding point of significance. The factum of repayment thus also validated the stance of bona fide.

The ITAT held that the facts in the present case thus spoke for itself and there appeared no need to amplify the findings of CIT(A) and the reasoning advanced on behalf of revenue lacked merits. Thus, the appeal of the revenue was dismissed.

Where pursuant to a scheme of arrangement and restructuring, assessee’s shareholding in a company was reduced, long-term capital loss arising to assessee on account of reduction of capital has to be allowed even if no consideration is paid to the assessee.

60 Tata Sons Ltd. vs. CIT

ITA No.: 3468/Mum/2016

A.Y.: 2009-10

Date of Order: 23rd January, 2024

Section: 2(47), section 48 and section 263

Where pursuant to a scheme of arrangement and restructuring, assessee’s shareholding in a company was reduced, long-term capital loss arising to assessee on account of reduction of capital has to be allowed even if no consideration is paid to the assessee.

 FACTS

The assessee-company owned 288,13,17,286 equity shares in TTSL acquired at various points of time, which were held as capital assets.

Since TTSL had incurred substantial loss in the course of its business for providing telecom services, a large part of the paid-up share capital of TTSL was utilized so as to finance / bear the said loss.

In view of such losses, a scheme of arrangement and restructuring between TTSL and its shareholders was entered under sections 100 to 103 of the Companies Act, 1956, which was approved by the High Court.

As per the scheme—

— the equity shares of TTSL of ₹10 each from 634,71,52,316 shares was reduced to 317,35,76,158 shares.

— no consideration was payable to the shareholders in respect of the shares which were to be cancelled.

Consequently, the shareholding of the assessee was also reduced to half.

The assessee claimed such a reduction of capital as long-term capital loss, which was set off against other long-term capital gain.

During the course of assessment proceedings under section 143(3), AO specifically raised the issue relating to the assessee’s claim for allowability of long term capital loss. However, after examining the submissions of the assessee, he allowed such loss.

PCIT initiated revision proceedings under section 263 and held that since no consideration was received by or accrued to the assessee by way of reduction of capital, the computation mechanism provided under section 48 fails and consequently, long term capital loss cannot be worked out.

Aggrieved, the assessee filed an appeal before the Tribunal.

HELD

The Tribunal observed as follows:

(a)  There can be no dispute that there was a loss on the capital account by way of a reduction of capital invested and therefore any loss on the capital account, is a capital loss and not a notional loss.

(b)  If the right of the assessee in the capital asset stands extinguished either upon amalgamation or by reduction of shares, it amounts to the transfer of shares within the meaning of section 2(47) and therefore, computation of capital gains has to be made.

(c)  Following the observations of Gujarat High Court in CIT vs. JaykrishnaHarivallabhdas,(1997) 231 ITR 108 (Guj), it held that even when the assessee has not received any consideration on reduction of capital its investment has reduced resulting into capital loss, while computing the capital gain, such capital loss has to be allowed or set-off against any other capital gain.

Accordingly, the Tribunal held that AO had rightly allowed the computation of long-term capital loss to be set off against the capital gain and consequently, it set aside the order of PCIT under section 263.

No exemption under section 54F is allowable in respect of a building which was predominantly used for religious purposes. Section 54F does not allow pro-rata exemption.

59 ACIT vs. Shri Iqbal Ali Khan

ITA No.: 505 / Hyd / 2020

A.Y.: 2013-14

Date of Order: 12th January, 2024

Section: 54F

No exemption under section 54F is allowable in respect of a building which was predominantly used for religious purposes.

Section 54F does not allow pro-rata exemption.

FACTS

The assessee sold two properties for a total consideration of ₹8.81 crores, resulting in capital gain of ₹7.21 crores.

He claimed exemption under section 54F to the extent of ₹5.47 crores, by constructing a building consisting of ground floor plus three floors in Hyderabad.

The assessee had not taken any municipal permission before starting the construction.

However, subsequently, in the application forregularization dated 31st December, 2015 filed with the municipal authorities, it was stated that the property consisted of a mosque, orphanage school and staff quarters.

The Assessing Officer disallowed the exemption under section 54F.

On appeal, by relying on the remand report and verification / enquiry report of the inspector, CIT(A) held partly in favour of the assessee by allowing pro-rata exemption under section 54F in respect of first, second and third floors.

Aggrieved, the revenue filed an appeal before the Tribunal.

HELD

The Tribunal held that –

(a) the property was predominantly being used for religious purposes, namely, mosque, orphanage school and staff quarters and therefore, it did not fit within the definition of “residential house” as contemplated under section 54F.

(b) Further, there was no evidence to show that the assessee had invested in construction of a residential house and therefore, he was not entitled to any relief under section 54F.

(c) The literal reading of section 54F makes it abundantly clear that there was no scope of grant of pro-rata deduction, more particularly when no provision of residence can be made in a mosque.

Accordingly, the grounds of appeal of the revenue were allowed and the order of the Assessing Officer was upheld by the Tribunal.

 

Where the assessee transferred 62 per cent of the land to a developer in exchange for 38 per cent of the developed area to be constructed over time under an unregistered joint development agreement / irrevocable power of attorney, the transaction was liable to capital gain under section 2(47)(vi) in the year of the agreement.

58 K.P. Muhammed Ali vs. ITO

ITA No.: 1008 / Coch / 2022

A.Y.: 2012-13

Date of Order: 12th January, 2024

Section: 2(47)(v) / (vi)

 

Where the assessee transferred 62 per cent of the land to a developer in exchange for 38 per cent of the developed area to be constructed over time under an unregistered joint development agreement / irrevocable power of attorney, the transaction was liable to capital gain under section 2(47)(vi) in the year of the agreement.

 

FACTS

On 27th June, 2011, the assessee and a developer entered into a Joint Development Agreement (JDA) and a General Power of Attorney (GPA) in respect of a piece of land in Kasaba village for the construction of a residential complex. Both JDA and GPA were not registered.

Under the said agreements, the assessee transferred his rights into 62 per cent of the land in lieu of 38 per cent of the developed area to be constructed over a period of time.

The construction was completed only in 2017. Thereafter, as and when the assessee executed assignment deeds in favour of the various parties who purchased the assessee’s share of apartments, he had declared capital gains in his returns of income for such year(s).

The question before the Tribunal was whether the arrangement can be regarded as transfer under section 2(47) exigible for capital gain in the year of execution of JDA / GPA.

 

HELD

The Tribunal observed that-

(a) Though the assessee fulfilled the other conditions of section 53A of Transfer of Property Act, 1882 as propounded in Chaturbhuj Dwarkadas Kapadia vs. CIT, (2003) 260 ITR 491 (Bom), with effect from 24th September, 2001, section 53A does not recognize unregistered contracts. Hence, section 2(47)(v) would not apply to the facts of the assessee wherein both the JDA and GPA were unregistered.

(b) However, the constraining factor of registration of a contract would not be relevant in the case of section 2(47)(vi) which applies to any agreement or arrangement or a transaction in any other manner which has effect of transferring or enabling the enjoyment of immovable property, as explained in P. George Jacob vs. ITO (in ITA No. 558/Coch/2022, dated 2.3.2023).

(c) It is well-settled that income is to be taxed in the hands of the right person and for the right year, and it is being offered to tax in the hands of another person or year would be of no relevance in law.

The Tribunal held that the transaction between the assessee and developer under JDA / GPA constituted a transfer under section 2(47)(vi) and was liable to capital gain in the year of entering into the agreements.

With regard to the quantification of capital gain, the matter was set aside to the file of the Assessing Officer with an observation that since land in question was acquired prior to 1st April, 2001, fair market value on that date would be considered cost of acquisition (and further indexed under section 48); and sale consideration would be compared to stamp value on transfer date under section 50C.

Recycling Of Wastes – An Accounting Conundrum?

Old mobile phones. Plastic wrapper of a chocolate bar. Used tyres. Most people would think of this kind of detritus as a future landfill, as the bulk of these wastes goes unprocessed. The ever-growing pile of waste is causing irreversible damage to the environment.

But not anymore. Indian lawmakers are waking up and passing / amending Rules under the Environment (Protection) Act, 1986, to enforce Extended Producer Responsibility for certain entities. These Rules cast an obligation on producers / brand owners / importers for environmentally sound management of their products that have reached their end of life and are now considered a waste. Extended Producer Responsibility includes collection / recycling of waste as prescribed in the Rules.

Based on the ‘Polluter-Pays Principle’ the purpose of these Rules is neither to transfer public expenditure to these entities nor to penalise them, but to set appropriate signals in place in the economic system so that environmental costs are incorporated in the decision-making process and hence arrive at sustainable development that is environment-friendly. These Rules have continuously been expanded to cover major categories of wastes and include manufacturers and importers irrespective of the selling technique used, such as dealers, retailers, e-retailers,etc (i.e. producers) and online platforms / market places and supermarkets/retail chains (i.e., brand owners). Following is a high-level summary of some of the key Rules:

These Rules raise certain fundamental questions regarding accounting for the cost of fulfilling the legal obligation to recycle / collect waste. Some of them are discussed below:

WHEN IS THE OBLIGATING EVENT?

A provision under Ind AS 37 is recognised when an entity has a present obligation (legal / constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision should be recognised.

The definition of a legal obligation refers to an obligation that derives from a contract (through its explicit or implicit terms), legislation or other operation of law. It is worth mentioning that the concept of an obligating event is open to interpretation and requires the exercise of significant judgement, as the obligating event is not always easy to identify. The following views are possible in the extant case:

View I – Sale of goods is the obligating event

The proponents of this view believe that the sale of goods is the event which triggers compliance under the Rules. The timing of recognition of the cost of fulfilment should be contemporaneous with the timing of revenue recognition. Provision should be made for all unfulfilled obligations emanating from historical sales as well as sales made during the current year (for which obligation to recycle would occur in subsequent years). The proponents argue as follows:

  • The minimum recycling targets, as summarised above, are generally based on the products ‘placed in the market’ or products ‘purchased / manufactured / imported’ previously. A product is placed on the market when it is made available for the first time on the market, i.e. when it is first supplied for distribution, consumption or use on the market in the course of a commercial activity, whether in return for payment or free of charge. Thus, the placing of a product in the market occurs on its sale to customers. A similar connotation is relevant where products are purchased, imported, etc.

 

  • The Rules aim to recycle end-of-life (i.e., waste) products and reduce the consequential damage to the environment. The expiration of the life of the product and the damage to the environment potentially begins when the customer starts using the products. Accordingly, the sale of products is the foundational tenet of these Rules.
  • Going concern basis envisages that the financial statements would continue for the foreseeable future. Thus, these entities would be economically compelled to incur the cost of recycling of all products sold to date, including sales made in the current year.
  • Analogy can be drawn from a similar situation where a lessor is obligated to return the leased premise in the same state that existed at the inception of the lease. For example, if an entity has erected partitioning in a leasehold building and the partitioning must be removed at the end of the lease term, then provision is made for this cost at the time of putting up the partition wall.

View II – Existence of the producer on the measurement date is the obligating event

This view is based on the premise that the cost associated with the fulfilment of Extended Producer Responsibility is akin to a levy as described in Appendix C to Ind AS 37. Proponents of this view argue that the obligation can be avoided if the entity ceases to exist on the measurement date. Under this approach, any unfulfilled obligation in relation to historical sales should be provided for. No provision is required for sales made in the current year (for which the obligation to recycle would occur in subsequent years). The following are the relevant arguments:

  • A levy is an outflow of resources embodyingeconomic benefits imposed by Governments (including Government agencies) other than those covered under other Ind AS e.g. income taxes under Ind AS 12 and fines or other penalties imposed for legislationbreaches. As long as the payments are required by law, they are generally considered to be imposed by the government.

Under the Rules, the obligation should be met through authorised recycling agencies, which will inter alia provide the certificates of recycled quantity to the entities. Instead of paying a charge directly to the Government for recycling the waste products, the charge would be paid to the Government’s agents. Thus, the payment made for the purchase of certificates from Government authorised recycling agencies is in the nature of a levy. Appendix C is specific guidance for the accounting of levies that builds on the principles of Ind AS 37. Thus, the assessment of the obligating event of wastes should be based on Appendix C to Ind AS 37.

  • Under Appendix C, the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by the legislation. For example, if the activity that triggers the payment of the levy is the generation of revenue in the current period and the calculation of that levy is based on the revenue that was generated in a previous period, the obligating event for that levy is the generation of revenue in the current period. The generation of revenue in the previous period is necessary, but not sufficient, to create a present obligation.

Under the above Rules, the payment to recyclers will arise only if the producer exists during the measurement period. For example, a producer would be obligated to meet the obligation in FY 2023-2024 only if the producer is in operation in such year. Since the activity that triggers the payment of the levy is the existence of the producer in the current period and the calculation of that levy is based on the products sold in a previous period, the obligating event for that levy is the existence of the entity in the current period. The sale of products in the previous period is not the activity that triggers the payment of the levy but only affects the measurement of the liability.

  • Merely preparing financial statements under the going concern assumption does not imply that the entities have a present obligation to pay a levy triggered by operating in a future period.

Closing entries:

  • It would be appropriate to follow View II. The accounting policy of a listed company provides as follows:

Provision for E-Waste/Plastic-Waste management costs is recognized when the liability in respect of products sold to customers is established in accordance with E-waste Management Rules, 2016, as notified by the Government of India. Initial recognition is based on liability computed based on Extended Producer Responsibility as promulgated in said Rules, including the cost to comply with the said regulation and as reduced by the expected realisation of collectable waste. The Company has assessed the liability to arise on a year-to-year basis.

  • View II would also be in line with global practices such as the European Union’s Directive on Waste Electrical and Electronic Equipment. The Directive prescribes that the cost of waste management for equipment should be borne by producers of that type of equipment that is in the market during the period specified in the applicable legislation. The manufacturers have to contribute to costs in proportion to their respective share of the market by type of equipment.
  • The International Financial Reporting Interpretations Committee (IFRIC), as set up by the International Accounting Standards Board, has issued certain guidance on the manner of recognition of liability under the above Directive. 1IFRIC 6 concludes that the event that triggers liability recognition is participation in the market during the measurement period. The measurement period is a period in which market shares are determined for the purposes of allocating waste management costs. IFRIC 6 states that this date, rather than the date of production of the equipmentor incurrence of costs, is the triggering event for liability
1   IFRIC on Liabilities Arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment

Measurement of obligation

The above Rules mandate entities to purchasecertificates from authorised recyclers to meet their Extended Producer Responsibility. The cost of obligation is derived basis the target quantity multiplied by the rate per unit as agreed with the authorised recycler. For example, if an entity is required to recycle 100MT of plastics and the authorised recycler charges ₹10 per MT; then an expense of INR 1,000 should be recognised at the end of the current year. The amount of unfulfilled obligation, if any, should be classified as a provision in the Balance Sheet.

Closing entries:

  • Making a reliable estimate is one of pre-conditions for recognition of a provision under Ind AS 37. The Standard takes the view that a sufficiently reliable estimate can almost always be made for a provision except for extremely rare cases. In the extremely rare case where no reliable estimate can be made, a liability exists that cannot be recognised.
  • In certain cases, entities face significant challenges in measuring the obligation. These challenges can stem from the non-availability of certificates with the authorised recyclers or the lack of necessary information to estimate the amount of cash outflow required to recycle a particular category of waste. Relevant extracts from the financial statements of a listed company are as follows:

On 21st July, 2022, the Ministry of Environment, Forest and Climate Change issued notification containing Regulations on Extended Producer Responsibility (EPR) for Waste Tyre applicable to Tyre manufacturers and Recyclers. As per the notification, the Company has a present legal obligation as at31st March, 2023, to purchase EPR certificates online from Recyclers of waste tyre registered with the Central Pollution Control Board to fulfil its obligations,which is determined based on a certain percentage of the quantity of tyres manufactured in the year ended 31st March, 2021.

Currently, the modalities of the above regulations are dynamic. They would be fine-tuned in line with the changing requirements, including measurement of obligation and timeline for achieving compliance by tyre manufacturing companies in consultation with the Industry forum of Tyre companies. Accordingly, the Company has not recognised any provision towards EPR obligation for the year ended 31st March, 2023.

Overview of NFRA Inspection Reports of 2023 on Audit Firms– II

This is the second and final article to cover an overview of the first five NFRA inspection reports. The inspection process, timelines and the structure of the inspection reports were covered in the February 2024 issue of The BCAJ on page 21, including the summary of NFRA observations related to governance and leadership structures or lack / non-disclosure thereof, international and domestic network / affiliations. The article also covered issues pointed out by NFRA related to non-audit services provided to audit clients and SQC 1.

This second part is on the remaining observations of NFRA on audit quality control systems, independence, engagement quality control and points arising from the review of engagement files based on selected areas. From these two articles, one will be able to draw practical nuances relating to Standards on Auditing and other applicable laws and regulations.

At the cost of repetition, the purpose of this compilation is to enable auditors and audit firms to understand the focal points and key issues arising from these inspections. By understanding key features, firms can take the necessary steps to be compliant with applicable regulations.

The five reports covered are as below and referred to with the last two digits to identify the reports:

PART B OF REPORTS

The subheadings in all five reports are different in both sequence and content. Excluding leadership, structure, and Independence matters, which are covered in The BCAJ, vide article of February 2024 on page 21, let us consider Documentation, Engagement Quality Control and some observations arising from the review of the audit files.

FIRM WIDE AUDIT QUALITY CONTROL SYSTEM

1) EQCR Partner: The firm’s procedures fall short of SA 220 and SA 230 and the Firm’s Policy. Two samples selected contained incomplete work papers without sufficient evidence of EQC review done. (Para 30, Report No 01)

2) The practice of deleting all review comments should be reviewed as they may constitute a discussion between the Engagement Team and EQCR, which is mandatory under SQC 1 and SA 220. (Para 31, Report No 01)

3) Evidence of performance of EQCR, i.e., the EQCR docket (summary of EQCR work performed) was not made part of the Engagement Management System (EMS). However, EQCR clearance was obtained prior to the issuance of the audit report. This is despite the firm’s Policy of generating the EQCR docket via the EQCR portal to be incorporated in the EMS. (Para 26 & 27, Report No 02)

4) There was an instance of lack of reassessment of audit risk upon finding some suspicious transactions, etc., which was not in accordance with Para 31 of SA 315 and Firm’s Policy Manual. This matter led to reporting under Section 143(12) to the central government, adverse opinion and eventual resignation from audit later that year whereas suspicious transactions were noticed in the second quarter itself. (Para 18–22, Report No 02)

5) Consultation was taken, a decision taken on that basis, but the rationale was not recorded which is not in accordance with Para 56 of SQC1, which is not in accordance with the firm’s own Policy Manual. (Para 30–32 Report No 02)

6) Engagement Management System (EMS) required annual and engagement level independence confirmations. However, EMS permitted access to audit without obtaining the engagement level independence confirmations (which is an additional control), which is in violation of the Audit Firm’s Policy Manual and Para 18 of SQC 1. (Para 17 Report No 02)

7) An Independence compliance audit done by a network firm partner identified that “35% of the Partners, the sole Executive Director, 55% of the Directors and 38% of the Sr. Manager/Managers had not reported the financial relationships, required to be reported in accordance with the Firm’s independence policies”. Such high rates of non-compliance with the firm’s own independence policies were of serious concern to the NFRA. Despite such significant violations, the sample size was reduced compared to the prior year. The firm failed to provide the complete Independence Compliance Audit Report for FY 2020–21. A sample test of five audit engagements revealed that independence confirmations were absent in the case of some members of the engagement team and in some cases, independence declarations were obtained after the issue of the audit report. The Independence Compliance Tool is not aligned with Indian laws. (Para 22–26 Report No 03)

8) EQCR needs to be a partner who is a member of the ICAI as per SA 220 and SQC 1. However, the Firm’s EQCR Policy did not specify that EQCR shall be a member of the ICAI. (Para 23 Report No 04)

9) There is no document explaining the rationale or criteria for the selection of engagement files for internal quality inspection and specific areas for review by the inspection team. (Para 30 Report No 04)

10) Firm persons interviewed by the NFRA inspection team did not have much clarity on how to choose the value of assurance factor for the desired level of testing so far as sampling was concerned. (Para 28 Report No 04)

11) The Firm had a policy of doing background checks of the auditee company from the database of the network entity. In some cases, background check reports were not positive and yet the firm did not carry out alternative tests to assess client integrity for accepting / continuing. The firm’s reliance solely on a single source (network entity database) was found insufficient and not in accordance with Para 28 of SQC 1. (Para 25 Report No 05)

12) No audit documentation was found in relation to the evaluation of the competence and capabilities of the audit firm to undertake the engagement. (Para 27 Report No 05)

13) Audit documentation by EQCR is not fully compliant with Para 25, SA 220. (Para 28 Report No 05). Working papers had no documentation of the work done by EQCR. (Para 30 Report No 05)

AUDIT DOCUMENTATION

1) The firm’s policies and procedures to ensure integrity of its electronic audit documentation were not fully in accordance with the requirements of SQC 1 (Para 77, 79, 80). (Para 13 Report No 01)

2) The audit evidence, which is reviewed and signed as final, can be edited, altered or modified subsequently without affecting the previously provided signoff. While a report gives information about edits, it doesn’t identify the exact changes made in the document. (Para 13 Report No 01). Such weakness can lead to signing a blank folder and then allowing the engagement team to add documents before archival.

3) The electronic documentation system does not meet the requirement of Para 9 of SA 230. Neither the preparer nor reviewer date marks the completion of an audit procedure.

4) The archival process of the firm’s electronic work papers lacks integrity as the copy of the achieved file is editable while it is used for other post-archival purposes and, therefore, does not serve the purpose of audit documentation under Para 3 of SA 230. (Para 15, Report No 1)

5) Audit Work papers can be modified after sign-off. The application supports multiple sign-offs by the same and / or different people. It does not mandate modifier sign-off after the modification. A blank paper after sign-off can be filled out later without affecting sign-off. In the instances sighted by NFRA, there was no evidence of why and when documents were modified and who made and reviewed the changes. This was in non-compliance with Para 79 of SQC 1 and Para 8, 9 and 13 of SA 230. NFRA noted that “sufficient appropriate audit evidences are not obtained before issue of audit report as evidenced from large scale modification of AWPs post issue of audit report and without signing off AWPs after such modification.”(Para 29–30, Report No 3)

6) Signing partner is not the same as Engagement Partner in violation of Para 46 and 56 of SA 700 and 6.b of SQC 1. In FY 2020–21, there were 40 cases where Engagement Partners did not sign the audit reports. (Para 32, Report No 3)

7) The firm needs to put in place policies to deal with complaints and allegations about non-compliance with professional standards, regulatory compliance or legal requirements or the firm’s system of QC to ensure compliance with Para 101 of SQC 1. (Para 34, Report No 3)

8) NFRA desired that there should not be paper files and electronic files and all papers should be scanned and kept in electronic files. (Para 26, Report No 4)

9) Physical files are neither scanned nor incorporated by electronic files via cross-referencing of paper files with electronic files. Files lacked integrity prior to archival. (Para 12, Report No 5)

10) Sources of audit documents — whether from clients, etc., — were not available. This is a potential risk under SA 500, SA 540 and SA 550. (Para 13, Report No 5)

PART C OF REPORTS — NFRA OBSERVATIONS ON REVIEW OF INDIVIDUAL AUDIT FILES

NFRA selected a few Engagement Files for review (Refer to page 21, The BCAJ, February 2024) and selected three significant audit areas in respect of those selected engagements: Revenue, Trade Receivables and Investments.

1) The Audit Engagement team did not document its judgment for not recognising applicable types of revenue, revenue transactions and assertions as a fraud risk as necessitated by SA 240 to determine the risk of material misstatement due to fraud in the audit of revenue. (Para 32, Report No 1)

2) Audit Evidence in respect of year-end balance was not found in work papers and was obtained from the custodian during the course of the NFRA review. (Para 34, Report No 2)

3) Existence Assertion in respect of Investments at year-end, being 1 per cent, was necessary to be obtained at year-end and not obtaining such evidence was not in conformity with the firm’s policy manual and SA 230. (Para 35-36, Report No 2)

4) NFRA appreciated Non-Audit Services (NAS) guidelines voluntarily issued by the firm with effect from 1st April, 2020. At the same time, the firm delivered tax services related to DRP to an audit client in respect of years when such an entity was not an audit client. The firm had in place certain safeguards where the tax and these fell under transitional provisions of its internal NAS Guidelines. (Para 37–42, Report No 2)

5) In the case of two company audits, the financial statements did not disclose full particulars of the loans given, the investment made or guarantee given or security provided and the purpose for which the loan or guarantee or security was proposed to be utilised by the recipient of the loan or guarantee or security, thus not complying with Section 186(4) of the Companies Act 2013. The auditor did not report on it in CARO para (iv) despite its reporting responsibility. (Para 36, Report No 3)

6) Final financial statements (FS) and independent auditors’ report (IAR) were not available on the audit file and the draft FS and IAR that were on the file were different from those on the website of BSE in violation of Para 30 of SA 330. The firm accepted this as an inadvertent error. (Para 37, Report No 3)

7) In respect to 3 out of 5 selected companies, the firm was found deficient in performing appropriate audit evidence in respect to impairment of investments. (Para 38–42, Report No 3)

a. In respect of one auditee company, uponacquisition of a group of companies under Ind AS 103 Business Combinations, the firm relied on a two-year-old valuation report in respect of the subsidiary and did not perform any audit procedures for identification of impairment indicators. There was also no working in respect of how the amount in respect of investment was arrived at.

b. In respect of the same auditee, the firm wrongly concluded that no impairment loss was required to be recognised:

i. On the grounds that the subsidiary was in the process of issuing shares to an unrelated MNC which will increase the share price in the near future.

ii. On the grounds that the subsidiary was a dividend paying company and 100 per cent subsidiary, therefore, it did not perform impairment testing.

iii. Since it involved the work of a valuation specialist engaged by another audit team which audited that subsidiary was not evaluated.

c. In respect of another auditee, the audit firm wrongly presumed a subsidiary as 100 per cent owned whereas it was 84.18 per cent owned. NFRA stated that had the correct percentage of investment been considered, the impairment value would have been material to be recognised. The detailed enterprise value relied upon by the firm was also not available on the audit file.

d. In the case of another auditee, the Firm concluded that no impairment was required to be recognised for the investment in an associate, on the basis that the associate company had issued shares to unrelated market participants at a value higher than the carrying value. However, the Firm did not perform any audit procedure to check that the referred market participants were not related to the auditee company.

8) The Audit Firm’s Information System Audit Team identified certain deficiencies in the IT Control Environment, i.e., Access to Programs and Data, Entity level controls and Period-end Financial Reporting. The audit firm did not issue a modified audit opinion in respect of the IFC report despite these critical inadequacies and deficiencies. The audit file did not contain any work paper concluding that a modified opinion was not required. (Para 40–41, Report No 4)

9) The Engagement Team’s selection of a sample size of only 25 was not commensurate with the risk level. (Para 40–41, Report No 4)

10) ET had planned to obtain a ‘Low’ level of substantive evidence despite the significantly weak IT General Control environment identified by the Information Systems Audit Team. The total monetary value of transaction testing was ₹19.5 crores, which was 2.09 per cent of Total Revenue of ₹930.14 crores. As a result, the ET did not have sufficient appropriate audit evidence to support its unmodified opinion on the financial statements. The Audit Firm’s response was not accepted as it was not in accordance with the SA 530. (Para 44–47, Report No 4)

11) ET did not perform any substantive audit procedure to check the accuracy and correctness of the ‘price details’ applied to the actual invoices generated. (Para 48–49, Report No 4)

12) The entity’s significant accounting policy in respect to the recognition and measurement of revenue at the fair value of the consideration received or receivable was not in accordance with the Ind AS 115. (Para 50–51, Report No 4)

13) The Engagement Team’s audit in respect of verifying and ensuring the entity’s recognition and measurement for impairment loss allowance in accordance with the ECL approach of Ind AS 109 was inadequate and inappropriate (Para 8(a), A13, Para 8(c), A24, A25 and Para19 of SA 5409).

a. The account policy followed was not in accordance with the accounting policy disclosed.

b. The ET did not check how the management had adjusted the historically observed default rates to forward-looking estimates.

a. The entity had not made the disclosures required as per Para 35M and 35N of Ind AS 107 in respect to the credit risk exposure of Trade Receivables.

(Para 52, Report No 4)

14) Invoice-wise matching of customer collections which had an impact on the aging report was not done. This had a direct consequence on the calculation of impairment loss allowance for Trade Receivables. (Para 54, Report No 4)

15) Although the actual PBT benchmark for calculating materiality was significantly lower than planned materiality levels based on the past 3–5 years PBT, the overall materiality and performance materiality were not changed. This was a non-compliance with SA 450. (Para 56–59, Report No 4)

16) While evaluating the impact of misstatements identified during the audit, the ET had, while computing the uncorrected misstatements as a percentage of PBT, considered the number of uncorrected misstatements net of tax instead of gross of tax, leading to erroneous computation of the impact of uncorrected misstatements and the extent of audit procedures. (Para 60, Report
No 4)

17) The audit file did not have the auditee company’s policy on related party transactions. There was no evidence of obtaining a complete list of related parties at the start of the audit and the audit team having verified management assertion that RPT had taken place at arm’s length. The engagement team was, therefore, in violation of SA 550 (Para 24). In one case, the firm also stated that since the RPT were with subsidiaries, they did not pose an elevated risk. NFRA specifically stated that such presumption was not appropriate. (Para 61–63, Report No 4)

18) For evaluating impairment of investments, the audit firm did not independently evaluate significant assumptions of the auditee. Such assumptions of the auditee were found to be not appropriate and in excess. (Para 32, Report No 5)

19) The assessment of the auditor regarding the forward contract to acquire remaining shares from NCI is not separately traceable from the audit file. The disclosures in the financial statements for FY 2020–21 (year reviewed by NFRA) and 2019–20 in respect of the forward contract to acquire additional shares at a future date and the related contingent consideration arrangements are not in compliance with the requirements of Para B64(g) of Ind AS 103. A disclosure of the arrangement and basis of determining contingent consideration was necessary in the CFS of both years. (Para 33–35, Report No 5)

20) There was non-compliance with Section 186 of the Companies Act, 2013 and Companies (Number of layers) Rules as there was no evidence that the auditee met the criteria of CIC-ND-SI NBFC when it had 92 subsidiaries and 52 associates. The audit firm should have reported this in CARO, which was not done. (Para 36–37, Report No 5)

21) The EP failed to consider the possible effects of misstatements on financial statements, which were material and pervasive and, thus, required consideration of Adverse or Disclaimer Opinion as per SA 705. The possible effect was not only confined to investments but also to other balances such as loans and advances, provisions etc., which indicate their pervasiveness. (Para 38–40, Report No 5)

22) An auditee company having 286 subsidiaries out of which 255 were loss-making. Although there were indicators of impairment, the firm had relied on a management representation letter stating that there was no impairment loss and there was no assessment on AWP. (Para 41–42, Report No 5)

23) AWP did not have sufficient appropriate audit evidence of KAM in respect of the going concern assumption. (Para 43–44, Report No 5)

Part D contained a chronology of events. The appendix at the end of each report carried the actual responses given by each firm.

All five inspection reports make a good read considering they are part of the first set. We can expect several more inspection reports in the coming months and years on the next set of audit firms. I am sure the NFRA reports with time will also become uniform and nuanced and an annual summary of all points brought out during a year will make a good collection for users of such inspection reports. We can expect NFRA to receive a ‘follow up action taken’ from audit firms inspected as a desirable outcome.

Decoding Residential Status Under FEMA

INTRODUCTION

This article is the third part of a series on Income Tax and the Foreign Exchange Management Act (FEMA) issues related to NRIs. The first article focused on the provisions of the Income Tax Act, whereas the second one was on the applicability of the treaty on the definition of Residential Status. This article will focus on the definition of Residential status under FEMA regulation.

BACKGROUND

Many professionals get flooded with questions on cross-border transactions day in and day out from their resident and non-resident clients regarding the remittance and capital account transactions to be done by individuals and companies.

FEMA governs the financial aspects of a cross-border transaction. As far as the individuals are concerned, the fundamental issue is determining their residential status under FEMA.

In India, the residential status of an individual is determined under the Income-tax Act as well as under FEMA. People at large get confused in deciding the status under both statutes as the criteria for determination and their impact are pretty different.

We shall try to decode the definition of a RESIDENT under FEMA.

An Individual can be a resident under the Income-tax Act, and a non-resident under FEMA and vice versa. An individual can simultaneously be a non-resident or a resident under both Acts.

Also, under FEMA, a split residency is permitted, meaning a person can be a resident for part of the year and a non-resident for another part and vice versa. However, under the Income-tax Act, a person is either a resident or a non-resident for the entire financial year.

Thus, many permutations and combinations are possible. This leads to further complications in practical application.

The definition of “Resident” for an individual under FEMA is similar to that of erstwhile FERA, as both emphasise on a person’s intention. However, FEMA has included the number of days stay in India (more than 182 days) in the preceding financial year as one of the criteria for determining the residential status.

DEFINITION

A person resident in India is defined u/s 2(v) of FEMA, as follow:

“person resident in India” means —

(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—

(A) a person who has gone out of India or who stays outside India, in either case—

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than—

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India;

Whereas,
(w) “person resident outside India” means a person who is not resident in India;

From the above definition, it is clear that section 2(v) defines an individual to be resident in India if he resides in India for more than one hundred and eighty-two days during the course of the preceding financial year, except where he has gone out of India or who stays outside India, (a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period. Thus, a person falling under the above exceptions will not be considered a person resident in India even though his stay in India exceeded 182 days in the preceding financial year. This can give rise to a split residency. Consider an individual who leaves India for employment on 1st November, 2023. He can be considered a non-resident under FEMA from that date and would be a resident from 1st April, 2023 till 31st October, 2023. The exceptions will be operative as he is leaving for employment. Hence, although his stay in India during FY 2022-2023 exceeded 183 days, he would be regarded as non-resident w.e.f. 1st November, 2023.

Similarly, in case of a person resident outside India who is coming back to India to take up employment or for carrying on business or vocation in India or for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period, such person would be regarded as a person resident in India from the day he comes to India even if his stay in the preceding financial year in India was less than 183 days.

There is another school of thought, and according to which a person can become non-resident from the date he leaves India for employment, business / vocation or an uncertain period; however, to determine the residential status of an individual returning to India, one has to look at the physical stay of that person in the preceding financial year along with the intentions, such as employment, business / vocation or stay for an uncertain period. This view is applicable in the case of the purchase of immovable property in India as per the Press Release by the Government of India dated 1st February, 2009. As per the said Press Release, to be considered as a person resident in India, a person has not only to satisfy the condition of the period of stay in India (being more than 182 days during the preceding financial year) but also his purpose of stay as well as the type of Indian visa granted to him should indicate the intention to stay in India for an uncertain period.

In this regard, to be eligible, the intention to stay has to be unambiguously established with supporting documentation, including a visa.

Section 7(1) of the Limited Liability Partnership Act, 2008 (LLP Act) stipulates that every LLP should have two designated partners who are individuals, and at least one of them shall be a resident in India. The Explanation further provides that the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding year. Thus, an individual must satisfy the 182-day stay criteria to become a designated partner in an LLP.

Determination of the Residential Status of an individual based on his stay in India in the preceding FY may pose serious challenges, as one has to wait for the entire year to become a resident of India that is too subject to stay in the preceding FY of 183 days or more. Therefore, except for buying properties or becoming a designated partner in an LLP, the earlier view seems more practical and workable, i.e., an individual becomes a resident of India from the date he arrives for employment, business/vocation, or stay for an uncertain period.

This view is strengthened by the provisions of Para 7 of Schedule 1 of FEMA Notification 5 (R)/2016 – RB – dated 1st April, 2016, which provides that NRE accounts should be re-designated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts immediately upon the return of the account holder to India for taking up employment or for carrying on business or vocation or for any other purpose indicating intention to stay in India for an uncertain period.

From the above, it is clear that significant focus is being put on the intention of the person going abroad or returning to India.

Thus, we find that determining the residential status of a returning Indian is challenging. One needs to interpret the same in the context in which it is to be determined.

It is interesting to note that section 2(w) of the FEMA defines “person resident outside India” as a person who is not resident in India. Thus, it does not define the term “non-resident”, but for all practical purposes, the term “person resident outside India” is equated to “non-resident of India.” Similarly, the term “Non-Resident of India” (NRI) is not defined in FEMA, but various notifications / Master Directions define the term. For example, Para 2(vi) of the FEMA Notification 5 (R)/2016 – RB – dated 1st April, 2016, as well as defines ‘Non-Resident Indian (NRI)’ as a person resident outside India who is a citizen of India. Rule 2(aj) of the FEMA Non-Debt Instruments Rules, 20191 defines ‘Non-Resident Indian (NRI)’ as an individual resident outside India who is a citizen of India.

1      Also refer Para 2.18 of the Master Direction – Foreign Investment in India RBI/FED/2017-18/60 FED Master Direction No.11/2017-18 dated 4th January, 2018, updated up to 17th March, 2022

ILLUSTRATION

Let’s understand the concept of the Residential Status of an Individual under FEMA with the help of some examples:

1. Mr Raj leaves India for employment on 26th May, 2021. His stay during the preceding Financial Year, i.e., 2020–2021, was 365 days.

Will he be a non-resident as per FEMA?

Answer: Residence for an individual under FEMA has been defined u/s 2(v)(i).

An individual is considered an Indian resident if he has been in India in the preceding financial year for more than 182 days.

To determine the residential status of Mr. Raj as of26th May, 2021, we need to check if in the preceding year, i.e. 2020–21, his stay in India was more than 182 days.

As in preceding year Mr. Raj was in India for more than 182 days; he is a resident of India as on 26th May, 2021 as per FEMA.

However, on 26th May, 2021, Mr Raj went outside India for employment and therefore fell under one of the exclusions in the definition of “person resident in India” hence, he is a Non-resident of India from 26th May, 2021.

2. If Mr Raj returns to India on 31st July, 2023 for employment, what would be his residential status under FEMA for FY 2023–24? (You may assume his stay in India during the FY 2022–2023 period to be less than 182 days).

Answer: To determine the residential status as per FEMA law for the financial year 2023–24, we need to check if his stay in India in the preceding year i.e. 2022–23 was more than 182 days. As in the preceding year, Mr. Raj was in India for less than 183 days. He is a Non-resident as per FEMA till July 2023, after which he shall become a Resident if he intends to stay in India for employment.

However, if Mr Raj intends to buy a property in India, he must complete a stay in India of 183 days or more in the preceding FY. Assuming Mr. Raj’s stay in India during the FY 2023–2024 exceeds 182 days, he can buy a property in the FY 2024–2025.

From the above, it is clear that one needs to apply the test of stay in India as well as the intention of a person depending upon the context for which one determines the residential status.

RESIDENTIAL STATUS OF A STUDENT GOING ABROAD FOR STUDIES

RBI vide its Press Release 2003-2004/710. Circular No. 45 dated 8th December, 20032 has clarified that “taking into account the definition of resident under FEMA and the intention of the student to stay abroad for an uncertain period though not for permanent settlement, it has been decided to treat them henceforth as non-residents from the FEMA angle.” The Circular further clarifies that “as non-residents, students will, in any case, be eligible for receiving remittances from India, as follows: (i) up to USD 100,000 from close relatives from India on self-declaration towards maintenance, which could include remittances towards their studies also, (ii) up to USD 1 million out of sale proceeds / balances in their account maintained with an AD in India, (iii) all other facilities available for NRIs under FEMA, (iv) educational and other loans which were availed (as residents in India) by students would be allowed to continue.”

2      https://www.rbi.org.in/commonman/Upload/English/PressRelease/PDFs/40570.pdf and https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=2763

While taking up studies or further advanced courses, students may have to take up jobs or seek scholarships to supplement income to meet their financial requirements abroad. As they have to earn and learn, their stay for educational purposes gets prolonged than what is intended while leaving India. Thus, the above clarification and NRI status will help students take up jobs and undertake various financial transactions as non-residents without violating FEMA provisions.

A few more examples of residential status are as follows:

 

Sr. No. Purpose Status Reasons
1 A person Leaves India to take up employment for the first time. A person Resident Outside India Since he has left India for employment, he has become non-resident from the day he leaves India.
2 The student leaves for Australia to undertake a Master’s degree course for three years. A person Resident Outside India As per RBI Circular No. 45 dated
8th December, 2003,
3 A person visits India as a tourist. A person Resident Outside India Since he is on a visit for a fixed or specific period.
4 A person goes to Brisbane to participate and represent India. His stay was extended for eight months. A person Resident in India Since he has gone for a fixed period and his coming back is confirmed.
5 A person has gone to the UK. She will return to India after the maternity case of her daughter. A person Resident in India Since the period of stay is definite and not uncertain.
6 A person has taken up American citizenship even though his wife and children are in India. He travels to India to meet his family and is in India for more than 250 days. However, he is employed in the USA and intends to be outside India. A person Resident Outside India Since he has no intention to stay in India for the uncertain period and is employed outside India.
7 A person is serving on board a ship flying the Indian National Flag and has not set up any residence, business, or profession outside India. Person Resident in India A ship with the Indian National Flag is considered a territory of India. He cannot be considered a person who proceeded outside India to take up employment and set up a business or profession.
8 A person employed with an Indian company undertakes export promotion tours to Singapore. He was in Singapore for approximately 201 days. A person Resident in India Since he is employed in India and has not gone to Singapore to take up employment or carry on business for an uncertain period, a visit abroad while exercising employment in India or a business visit cannot make a person non-resident. Also, export promotion tours typically are for a fixed duration; therefore, on all counts, that person will be regarded as a Resident of India.
9 A person leaves India for the US as he received a Green Card but has no employment or business, but he intends to settle or stay there for an uncertain period. A person Resident Outside India The receipt of a Green Card signifies the intention to stay outside India. The said intention is fortified with the person moving to such a country. Therefore, he
will be regarded as
a non-resident from the day he leaves India.
10 A person who is a foreign citizen of non-Indian origin sets up a proprietary concern in India on 1st June, 2019, to carry on business with the intention of settling in India. A person Resident in India Since a person is coming to India to set up Business or Vocation, he will be considered a resident in India.

OVERSEAS CITIZEN OF INDIA (OCI)

Another essential aspect to understand is OCI.

The Constitution of India does not allow holding dual citizenship.

However, to overcome the difficulty for various Indians settled abroad who have taken foreign citizenship (foreign passports), on 2nd December, 2005, the government launched the “Overseas Citizens of India” scheme. Registration as an OCI provides the registrant with a few benefits. An illustrative list is stated below:

 

  • A multiple entry / multi-purpose life-long visa for visiting India.

 

  • OCI may be granted Indian citizenship after five years from the date of registration, provided they stay in India for one year before making the application and are subject to renouncing the citizenship of another country. Employment is allowed to an OCI in all areas except mountaineering, missionary and research work and other work requiring PAP / RAP (PAP – Protected Area Permit, RAP – Restricted Area Permit).

 

A foreign national is eligible for registration as an OCI holder if one falls under any of the below criteria:

  • Who was eligible to become a citizen of India on26th January, 1950** or

 

  • Was a citizen of India on or at any time after26th January, 1950 or

 

  • Belonged to a territory that became part of India after 15th August, 1947

 

  • Person of Indian Origin card holders are deemed to be OCI.

Children and grandchildren, including minor children of the above-referred persons, are also eligible for registration as an OCI, provided their country of citizenship allows the same in some form or other under local laws and are eligible for registration as an OCI.

However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he would not be eligible for registration as an OCI.

  • A spouse of foreign origin of a citizen of India or spouse of foreign origin of an OCI card holder registered and whose marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the application’s presentation would be eligible to obtain registration as an OCI.

For eligibility for registration as OCI, such spouse shall be subjected to prior security clearance from a competent authority in India.

**Any person who, or whose parents or grandparents were born in India as defined in the Government of India Act, 1935 (as originally enacted), and who was ordinarily residing in any country outside India was eligible to become a citizen of India on 26th January, 1950. AnOCI card holder is eligible to visit India without obtaining a VISA.

PERSON OF INDIAN ORIGIN (PIO)

A PIO means a foreign citizen (except a national of Pakistan, Afghanistan, Bangladesh, China, Iran, Bhutan, Sri Lanka, and Nepal):

  • who at any time held an Indian passport; Or
  • who or either of their parents / grandparents/great grandparents were born and permanently resident in India as defined in the Government of India Act, 1935 and other territories that became part of India thereafter, provided neither was at any time a citizen of any of the countries above (as referred above); Or
  • who is a spouse of a citizen of India or a PIO.

A TRANSITION FROM PIO CARD TO OCI CARD

Earlier, the “PIO Card Scheme” was in place. The PIO card scheme has been withdrawn vide Gazette Notification No. 25024/9/2014 F. I dated 9th January, 2015. Further, vide Gazette Notification No 26011/01/2014IC. I dated 9th January, 2015; all existing PIO card holders are deemed OCI card holders. Therefore, no separate authentication of the existing PIO card as an OCI card is necessary. Henceforth, applicants may only apply for an OCI Card, as the PIO Card scheme no longer exists. Current PIO cardholders may apply for OCI cards instead of their PIO cards.

CONCLUSION

The residential status under FEMA is often misconstrued due to the insertion of a number of days’ conditions, similar to the definition under the Income-tax Act. However, it is essential to note that the impact of residential status under FEMA is from the regulatory perspective, not the revenue perspective. Some situations lead to different residential statuses as explained in the article above; however, from the perspective of FEMA, the person’s intention is of utmost importance. It is also noteworthy that intentions need to be justifiable / verifiable from the documentary evidence such as type of visa, employment letter, hiring of an apartment, etc., and it should not be merely a thought by a person that he intends to stay in or out of the country. If the intention, coupled with the number of days of stay, is examined correctly, the residential status can be obtained for a particular person for a given period. As stated earlier, applying the criteria of stay vs. intentions will be relevant in the context in which one seeks to apply the provisions.

BCAS President CA Chirag Doshi’s Message for the Month of March 2024

Future Ready – Finance Professionals

“If you don’t want to be like everybody, then you have to do what nobody has done. Walk a different path, and you’ll create a new destination for yourself.” — Mahatria Ra

 

Dear BCAS Family,

The future awaits with loads of opportunities for persons / entities who want to be different. If we accept that “knowing what we are and what we are not” is critical, then the time for change is now. The pace at which transformation is taking place in our profession and industries across the world, will not wait for anyone, a person or a firm. Firms that fail to define their identity will have the risk of being overtaken by more disciplined firms or watching their own relevance to clients decline. Whereas the firms that embrace the discipline and have the courage to define what they are and what they do will enjoy growth and success.

Traditionally, strategies have always been a fundamental trade-off between scale and relations. Now, technology allows firms to have both, no matter their size. Along with a new wave of cloud-based services, which are available for rent-based or subscription-based models, it is possible for even small firms to access the benefits of scale without investing heavily in assets themselves. Firms of the future will also need innovative and flexible methods of working that support their teams to solve specific problems and move on quickly. Traditional firms were defined by the assets they owned and controlled. Future firms will be defined by the ecosystems they create, the partnerships and the global reach they possess. The Firms of the Future will see the emergence of new ownership models, too.

The new era demands very different skill set and leadership approaches than what has prevailed for the past 40 years. The leaders of the firms of the Future will not only have to run their current engine—as efficiently as possible, but also create new avenues—tomorrow’s engine—that aligns with dynamic client needs, new competitors and new global economics.

Working for a firm of the future will be very different. Many times, it will feel like an investment banking firm more focused on mission-critical roles. At other times, it will feel like a professional services firm, with its ability to rapidly mobilise its resources. If anything is true of the last ten years in India, it’s that the mountains of change we’ve experienced which have left a big mark on the way corporates do business. Accounting firms have seen notable shifts in how they operate and deliver services.

Various elements are impacting the future age firms:

1: Global resourcing

Global resourcing allows accounting firms to access specialised expertise and talent without local or even national talent constraints and provide better service to their clients. By leveraging global talent, firms can increase efficiency and provide more innovative services to their clients.

2: New service offerings and delivery models

Clients now have new needs and firms have to continuously upgrade their skills and talents to stay competitive and adapt to new models of delivering better and more efficient services. Changes will be seen in the near future as to how firms provide their various advisory services, technology consultancy, data analytics, and other value-added services. Firms may also witness changes in their pricing models.

3: Specialization

Steve Jobs was known for saying, “Do not try to do everything. Do one thing well.” Professional firms will also need to adopt this approach whereby they specialise by industry, region, service, and other niches to secure a competitive advantage over their competitors.

4: Client experience

A stronger client-centric approach that focuses onmeeting every client’s unique needs is the path forward for the firms now. Firms might have to increase their team sizes and skills in the area of client relationships and experience.

5: Work-life balance

With parts of the world experimenting with 4-day work weeks, Firms need to understand their human resources capacity, have transparent agreements with staff, and be able to distribute work in a more balanced manner.

6: Partnership and collaboration

Markets are changing with clients expecting inputs for strategic vision, forward-thinking opinions, thought-provoking solutions and more. It will be difficult for firms to meet these needs. Your clients’ needs will continue evolving, and you must stay relevant. You will have to remember that you cannot do everything by yourself and will have to find partners who can help you solve problems for your clients that you can’t.

The firms in denial about the need for change should examine the following six characteristics:1. Partner / manager comfort zones; 2. Artificial harmony; 3. Overconfidence; 4. Herding instinct; 5. Banking on good intentions; 6. Vested anchoring.

To be on the growth path and lead the professional career with confidence and success, I am providing various questions which Practitioners should plan to address:

– Have you defined who you are, in terms of clients or industries served, services offered and specialities? Also, define who you are not.

– Have you reviewed your list of clients to verify that only “ideal client” are being on boarded?

– Of the services listed on your profiles/website, which ones represent areas in which you have critical clients? In which are you truly differentiator, so much so that you distinguish yourself in the marketplace?

– Any work you transitioned out of your firm because it does not fit your long-term strategy or skills requirements?

– Are you aware of the services of your firm that will continue to have reduced profitability because they offer no real competitive advantage?

– Does your services produce data and information but create no real value?

– Are your team members specifically aligned with your areas of focus so that they quickly grow?

– Do you hold partners accountable for your core strategies? Are they working towards a common goal that is in the firm’s best long-term interest or working to meet individual goals?

In the professional services industry, technology has accelerated the pace of change and enabled faster, more flexible service delivery. Firms of the future will have to embrace the change in every aspect from enhanced client experiences and leveraging technology for efficiency to building a more balanced workplace and innovating around service offerings, which will be critical for firms to adapt if they want to stay competitive and grow. Otherwise, experts predict that by 2025, firms that remain loyal to old ways of working will likely have fallen by the wayside

Leadership Retreat

Our Society organised the Leadership Camp at the Deolali Military Camp area at The Leslie Sawhney Training Centre on “Empowering Relationship”. The major takeaway for me was the 4A principle to resolve various professional and personal conflicts. Avoidance, Acceptance, Analysis and Activation. I would recommend members to look forward to more such events by the Human Resource Development Committee.

57th Residential Refresher Course (RRC)

Our Society just witnessed a remarkable 57th RRC on the theme of “Back to Roots”, which had a traditional flavour with new energies. The nostalgic 18+ RRC’s held earlier at the same location were remembered by our various Past Presidents sharing their views on the concept of RRC. Intense Group and Panel discussions, and the Presentation Papers set the academics rolling. This RRC also set the flavour of the future, with around 50% of participants being youth, bringing new energies and enthusiasm through various ice-breaking activities and team building games, treasure hunts in the midst of mountains of Mahabaleshwar, discussion of global opportunities and much more. I have shared my thoughts on how to be future-ready for professionals with just one desire: we have to be in control of our journey as a professional. I would like to conclude with a relevant quote from Manu Smriti, which is apt for attaining happiness:

सर्वंपरवशंदुःखंसर्वमात्मवशंसुखम्।

एतद्विद्यात्समासेनलक्षणंसुखदुःखयोः॥

Everything that is in another’s control is painful. All that is in self-control is happiness.

 

Best Regards,

Chirag Doshi

President

Section 43B (h) – Kahin Khushi Kahin Gham

Micro, Small and Medium Enterprises (MSME) are the backbone of the Indian economy. The share of MSME Gross Value Added (GVA) in the all-India Gross Domestic Product (GDP) during the years 2019–20, 2020–21 and 2021–22 was 30.5 per cent, 27.2 per cent and 29.2 per cent, respectively. The share of MSME manufacturing output in all India Manufacturing output during the years 2019–20, 2020–21 and 2021–22 was 36.6 per cent, 36.9 per cent and 36.2 per cent, respectively. The share of export of MSME-specified products in all India exports during the years 2020–21, 2021–22 and 2022–23 was 49.4 per cent, 45.0 per cent and 43.6 per cent respectively.1 As of 2nd August, 2023, the total number of persons employed by MSMEs was over 123.6 million people.

1      https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1946375

This shows the importance of the MSME sector in the development of the Indian economy. The government is aware of these facts and hence, has offered a slew of incentives and launched several schemes to help, protect and promote the interests of MSMEs. The schemes / programmes inter alia include the Prime Minister’s Employment Generation Programme (PMEGP), the Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE), the Micro and Small Enterprises-Cluster Development Programme (MSE-CDP), the Entrepreneurship Skill Development Programme (ESDP), the Procurement and Marketing Support Scheme (PMS) and the National SC/ST Hub (NSSH).

 

However, despite these schemes, the challenges faced by this sector are humungous. Some of the major challenges faced by MSMEs are a constraint of resources in terms of finance, human resources, technology and so on. If only these challenges are addressed, the share of MSMEs in the GDP of the Indian economy can be increased up to 50 per cent from the present 30 per cent or so. One of the advantages of the MSME sector is that it is labour-intensive and generates employment, which can be seen from the above mentioned figures. A cash-rich company is King in any industry, more so for the MSME sector. With the objective of helping Micro and Small Enterprises (Medium Enterprises are excluded) expedite their collections and improve their cash flows, a new clause (h) was introduced in section 43B of the Income-tax Act, 1961, w.e.f. 1st April, 2024. Accordingly, any payment outstanding at the year-end (e.g., 31st March, 2024) and paid beyond the due date prescribed under section 15 of the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED) is to be allowed as a deduction only in the year of payment. Section 15 of the MSMED Act provides the due date of payment as per the terms of the agreement or 45 days from the date of acceptance or deemed acceptance, whichever is earlier and within 15 days from the date of acceptance or deemed acceptance where there is no agreement2. These timelines are applicable across the board without any exceptions. Thus, payments made by one MSME to another Micro or Small Enterprise would also be subject to provisions of section 43B(h). Industries and businesses have not received these provisions requiring adherence to stringent timelines well for various reasons. The normal payment cycle is six months in some industries, e.g., textiles. Even FEMA provides nine months to realise export proceeds. Ninety days is the normally accepted period for the settlement of dues in various industries. Thus, 45 days is perceived to be too short a period for the settlement of dues of MSMEs.

2      Please refer to the separate Article in this issue of the Journal for the criteria for determining MSME, important provisions under the MSMED Act, 2006 and various issues arising from the amendment of section 43B of the Income-tax Act, 1961.

 

The Memorandum explaining the Finance Bill 2023 justifies the insertion of clause (h) in section 43B as a part of the Socio-Economic Welfare Measures. It states, “To promote timely payments to micro and small enterprises, it is proposed to include payments made to such enterprises within the ambit of section 43B of the Act. Accordingly, it is proposed to insert a new clause (h) in section 43B of the Act to provide that any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 shall be allowed as deduction only on actual payment. However, it is also proposed that the proviso to section 43B of the Act shall not apply to such payments.” The proviso to section 43B of the Income-tax Act, 1961, allows deduction on an accrual basis for various items if the amount is paid by the due date of furnishing of the return of income — this exclusion does not apply to micro and small enterprise dues. The reason for this provision seems to be to not grant time beyond what is prescribed under the MSMED Act. Whereas MSMEs should be happy with this provision, some also fear the loss of contracts from big companies, unless they deregister as MSMEs. The protection is available only to an MSME that qualifies as a “supplier” under section 15 of the MSMED Act. A “supplier”, as per section 2(n) of the MSMED Act, is that Micro and Small Enterprise which has filed a memorandum with authority referred to in section 8(1) (i.e., Udyam Registration). Thus, Udhyam Registration is a must to get protection under section 43B(h) of the Income-tax Act, 1961.

Another taxing issue for the tax auditor is to report such disallowances in Form 3CD. It will be extremely difficult to obtain information about the status of all suppliers in a large corporation. This is an additional burden on otherwise stretched tax auditors. Auditors will have to rely on the declarations filed by the MSMEs or representations made by the client. Detailed guidance from the ICAI will be useful to auditors. ICAI should consider how much responsibility be cast on tax auditors, and some portions of the tax audit report should be in the form of declarations / representations by the clients instead of certification of each and every figure by a tax auditor in Form 3CD. Micro and small enterprises should mention their Udyog Registration Number on their invoices, and the buyer or recipient of services should obtain a copy of such certificate on record.

In conclusion, the insertion of clause (h) in section 43B is with good intentions; however, considering varied practices across the industries, the proviso to section 43B, as applicable to other payments, should also be extended to Micro and Small Enterprises, allowing deduction of payments made before the due date of filing of the return. As demanded by various trade associations, the provisions may be deferred by one year so that sufficient time period is available for businesses to align with these provisions.

An amendment of this nature that significantly impacts businesses should be carried out only after consultation with stakeholders.

Election is around the corner, so we do not have a full-fledged budget this year. We await the full budget to be presented by the newly elected Government.

 

Warm Regards,

Mayur Nayak,
Editor

कर्मण्येवाधिकारस्ते मा फलेषु कदाचन | समत्वं योग उच्यते ………..| योग: कर्मसु कौशलम् …|

All the three lines are often quoted like proverbs. All the three lines are from the second chapter of Shreemad– Bhagawad Geeta. The text is as follows:

कर्मण्येवाधिकारस्तेमाफलेषुकदाचन l
माकर्मफलहेतुर्भूर्मातेसङ्गोऽस्त्वकर्मणि l l२.४७ ।।

योगस्थःकुरुकर्माणिसङ्गंत्यक्त्वाधनञ्जय।
सिद्ध्यसिद्ध्योःसमोभूत्वासमत्वंयोगउच्यते ।।२.४८।।

बुद्धियुक्तोजहातीहउभेसुकृतदुष्कृते।
तस्माद्योगाययुज्यस्वयोगःकर्मसुकौशलम्।।२.५० ।।

The word ‘yoga’ is derived from the Sanskrit root yuj (युज्). It means to join or to get connected. Yoga, in simple terms, means to get ourselves connected with God. Get ‘Atman’ (self) connected with ‘Super Atman’ (परमात्मा). This is in all religions / prayers are meant for achieving this goal. The word ‘yoga’ appears very frequently in Geeta. All chapters in the Shreemad-Bhagawad Geeta are also named as some ‘yoga’, e.g., Karma yoga and Bhakti yoga.

The literal meaning of each shloka is as follows:

2.47 – Only performing your duty (work, karma) is in your hands, not its fruit. Therefore, do not do any work to get a particular fruit since it is in God’s hands. At the same time, do not abstain yourself from doing your karma. Never think of stopping your work.

2.48 – Oh. Dhananjay (Arjun), keep doing your duty without attaching to the result or fruit. Be a real yogi (detached). Don’t get excited by success nor get nervous or depressed by failure. This equality of attitude towards success or failure is called ‘yoga’.

2.50 – Such a yogi gets detached from the sin or good work (पुण्य) – bliss – during his life itself. Keep on making efforts to achieve this detachment (yoga). Working without getting attached to the result is the ‘skill’ in the work.

Explanation
People often ask, “If we don’t’ work for success, why work at all?” The true implication is that one should certainly work for success, but success is not in one’s hands. You have no control over it. At the same time, the chances of God giving you success are better only if you do the work sincerely and honestly.

Take our familiar example of appearing for the CA examination! No need to elaborate on it. A doctor should perform surgery for success only; but keeping in mind that the result is not within his hands. This principle applies everywhere — war, sports, research, elections, singing, cooking, scientific activity and so on. Our India’s first Chandrayaan mission failed, but our scientists made it successful the next time. Had they become nervous, no success would have been possible. You can experience this in every walk of life. We CAs argue our case or appeal; but we have no control over the result. Still, we need to keep on fighting. Shrikrishna says, being the God Himself, He has everything within. Still, He needs to keep on doing some work or the other continuously. One cannot remain a single minute without work. If He stops working, everybody will give up work. Since He is the ‘leader’. If all stop working, it is a dangerous situation.

The next two shlokas are more or less an extension of this principle. Bhagwan recommends that everybody should strive to be a yogi – i.e., continuously working without getting attached. A mother rears the child by doing literally anything and everything. If the child is sick,she should attempt to cure him, but she should not expect anything beyond that, e.g. she should not keep on thinking that when the child grows up, he or she will reciprocate by taking care of the mother. A mother’s behaviour is a classic example of karma yoga.

समत्वंयोगउच्यते – Samatva does not mean ‘equality’ in the society as we presently understand. Here, it refers to equality of attitude towards success and failure. Similarly, inयोगःकर्मसुकौशलम्।Kaushalam does not mean merely the skill or dexterity; but the skill in the attitude of ‘not getting attached’.

Therefore, friends, let us try to be yogis int his sense.

Society News

Human Development Study Circle Meeting on
“Business Environment in India – Evolution, Opportunities, Challenges” held on
10th January, 2017

Human Development and Technology Initiatives Committee  (HDTI) of BCAS conducted a Human Development
Study Circle Meeting on “Business Environment in India – Evolution,
Opportunities, and Challenges” on 10th January, 2017 at BCAS
Conference Hall. 

Dr. Anil Naik, a Management Consultant, MBA from IIM Calcutta
and winner of many prestigious awards, having wide experience in Industry and
also visiting faculty at top Management Institutes in India and Abroad, gave
the presentation and covered the following topics- .

1.  Evolution of Business Environment in India
since 1991.

2.  Challenges of the Indian businesses to be seen
for :

• Family Owned & Family Managed Businesses

• Family Owned Professionally Managed Businesses

• Corporate Sector consisting of Indian
Companies, Foreign Companies operating in India and Collaborations of Indian
& Foreign Companies.

3.  He also cited the examples of companies
operating in India like Tata Motors, Kodak, Shapoorji Pallonji, Ballarpur
Industries and Kirloskar, etc.

The major basic issues discussed were:

·        
Major changes in Transportation Industry and
many others.

·        
Factors for success i.e. Adaptability to new
technology, Personality Skills, Pursuing Aspirations etc.

·     Stark realities of dynamic environment – No more
secrets, security is uncertain, Allegiance, Time is short – we need to run fast
to take up right opportunities at right time at great speed, Order of today’s
time is not clear – international business, supremacy of product plays vital
role.

·    India has 16 cultures. Cultural Differences.
Internal Culture of the organisation matters. Asian culture v Globalised
scenario. Adopting right mix of culture is challenge of today’s times.

·        
Business environment is Dynamic, turbulent and
unstable. How to become flexible. Opportunities for organic flexibility,
adaptability, innovation, accepting change and uncertainty are natural state of
things in the current environment.

·        
Ensure that institutions have capacity to serve.
Employees’ skills, motivation and capabilities play an important role.

Inescapable reality of new economy – 1) Seek and create
breakthrough changes. 2) Outsiders see it first 3) Right balance between
incremental improvement and radical innovation 3) Shortage of resources is not
necessarily serious, but shortage of imagination is certainly fatal 4) Nothing
lasts forever under its original momentum 5) Success contains the seed of its
own destruction 6) Primary challenge of leadership today is to create adaptive
organisation which has a built in capability to renew itself over and over
again.

The meeting was very fruitful and the participants benefitted
a lot from the Speaker’s rich experience.

Workshop on Merger & Acquisition held on 27th & 28th
January 2017

Corporate & Allied Laws Committee [‘C&ALC’] organised
a two days’ Workshop on Mergers & Acquisition at Hotel St. Regis, Lower
Parel, Mumbai. The event received an overwhelming response.

86 participants attended the workshop out of which almost 30
participants were from industry. Further, around 32 were outstation
Participants from cities like Ahmedabad, Vadodara, Hyderabad, Chennai and
Nagpur.

CA. Chetan Shah, President, welcomed the participants. CA.
Kanu S. Chokshi, Chairman of C&ALC gave a brief idea on the necessity of
such programme.

The Workshop was inaugurated by Dr. Lalit Kanodia, Chairman,
Datamatics Group. Eminent faculties addressed the participants on the relevant
topics along with their presentations. A 
booklet of the presentations made by various speakers at the workshop was
provided to the participants.  The event
was conceptualised by CA. Naushad Panjwani, Past President of BCAS, with the
help of Dr. Anup Shah. CA. Naushad Panjwani also shared his thoughts on certain
mergers at the said workshop. Advocate Praveen Veera chaired the session on
‘Stamp duty’ and CA. Shrenik Baid shared the dais along with CA. Kanu S.
Chokshi during the session on ‘Accounting Implications’.

The sessions of the said workshop on Merger & Acquisition
are summarised below:

Session I: Keynote Address – “Key negotiating
techniques used by buyers and sellers in a Merger & Acquisition
transaction” by Dr.Lalit Kanodia – Chairman, Datamatics Group.

Dr. Lalit Kanodia

He inaugurated the workshop and shared his practical
experiences in Merger and acquisition.

Session II: Alternative Disputes Resolution in
Merger & Acquisition by CA. Suresh Kotak –Chairman, Kotak Group.


CA. Suresh Kotak

He addressed the participants.& talked about steps taken
in area of ADR

Session III: Stamp Duty by Dr. Anup Shah, CA.
Pravin P. Shah & Co.

 

CA. Anup P. Shah

He covered various implications of  stamp duty under different modes of mergers
& acquisition. He also analysed stamp duty on CD, Debentures, Gift etc.

Session IV: Companies Act & Bankruptcy Law by
Adv. Sharad Abhyankar – Sr. Partner, Khaitan & Co. 

Adv. Sharad Abhyankar

He analysed
transaction charges, some of the procedural aspects and gave a mapping in
Merger & Acquisition. He also gave an overview of Insolvency and bankruptcy
code in relation to Merger & Acquisition.

Session V: SEBI Takeover Regulations by Adv. Akil Hirani –
Managing Partner, Majumdar & Co.


Adv. Akil Hirani

He took the participants through takeover code and insider
trading regulations with respect to, an open offer, in case of Merger &
Acquisition.

Session VI: Legal Due Diligence by Adv. Tushar Ajinkya.

Adv.Tushar Ajinkya

He highlighted the Due Diligence aspects with the typical
structure requirement, key areas to be checked, IPR and litigation issues.

Session VII: Financial due Diligence by CA. Rajesh
Khairajani – KNAV.


CA. Rajesh Khairajani

He touched upon various facets of financial due diligence on
both, buyer and seller side, inter alia, emphasising upon physical verification
of assets in  Merger & Acquisition
deal.

Session VIII: FEMA & Cross Border by CA. T. P. Ostwal,
T. P. Ostwal & Associates.


CA.T. P. Ostwal

He explained salient
features of various treaties of India & Mauritius /Cyprus/Switzerland; and
choice of jurisdiction. He also took 
participants through Automatic route vis-à-vis Approval route;

Session IX: Strategy & Value Creation by
Mr. Sudhir Valia – Executive Director, Sun Pharma.


Mr. Sudhir Valia

He shared his rich experience  in guiding participants as to how to proceed
for Merger & Acquisition.

Session X: Income Tax-Domestic/ International (in case of
cross border) by
CA. Hiten Kotak & CA. Falguni Shah.


CA. Hiten Kotak


CA. Falguni Shah

The speakers explained the funding structures – Key
consideration, recapitalisation and repatriation and indirect transfer and tax
thereon with practical examples.

Session XI: Accounting
Implications by CA. Himanshu Kishnadwala, CNK & Associates.


CA. Himanshu Kishnadwala

He gave an overview of provisions relating to M & A
contained in Companies Act 2013 and SEBI Regulations. He also dealt with the
applicability of Accounting Standard and Ind AS to Merger & Acquisition and
explained Accounting in Merger & Acquisition with an illustration.

Session XII: A typical Merger & Acquisition
process by CA. Sridhar Swamy.

CA. Sridhar Swamy

He explained the nitty-gritty of the Merger & Acquisition
process including identification and understanding buyer, process documents and
presentation to the Management. He also briefly explained legal documentation
in Merger & Acquisition.

Session XIII: Post Merger Integration by CA. Mitil
Chokshi.


CA. Mitil Chokshi

He drew attention of the participants to the difficulties
faced in integration Post Merger, some of the important factors peculiar to
each industry which could result in a possible threat to success of a Merger
& Acquisition deal. He also shared his experience regarding solution on
some of difficulties in Merger & Acquisition deals handled by him.

CA. Manish Reshamawala, Convener, with his untiring efforts
coordinated the programme with the support of CA. Preeti Oza, Convener. The
participants benefitted from the rich experience of the Speakers.

Experts chat @ bcas on “Internal audit 2017: global trends
and outlook” held on 30th January, 2017

An experts chat on “Internal Audit: Global Trends and
Outlook” was held at the BCAS Conference Hall on 30th January, 2017.

The program commenced with the signing of a Memorandum of
Understanding (MOU) between BCAS and the Institute of Internal Auditors –
Bombay Chapter (IIABC). This MOU will enable BCAS and IIABC to jointly
collaborate and develop mutually beneficial programs in the field of internal
audit, projects and activities for its members in the field of internal audit,
as well as to offer members of both parties to attend programs of each other.

President CA. Chetan Shah,
on behalf of BCAS and President CA. Sunil Gaitonde, on behalf of the Institute
of Internal Auditors – Bombay Chapter (IIABC) did the honours.

President CA. Chetan Shah then welcomed Mr. Richard F.
Chambers, the President and Chief Executive Officer of The Institute of
Internal Auditors (IIA), the global professional association and
standard-setting body for internal auditors. The IIA serves more than 1, 85,000
members in over 170 countries and territories and is the internal audit
profession’s most widely recognised advocate, educator, and provider of
standards, guidance, and certifications.

L to R : Mr. Richard F. Chambers in the fireside chat with CA. Nandita Parekh

Mr. Chambers made a detailed presentation on the emerging
trends in internal audit, more particularly, the reporting structure, critical
focus areas, need to understand the audit culture of the organisation,
cyberspace audit, audit of big data. His talk was generously interspersed with
interesting statistics and results of survey done by Internal Audit Foundation,
across various continents and organisations.

Mr. Chambers shared a list of five strategies for every
internal auditor to equip himself with:

·        
Respond to the voice of the customer

·        
Strive for agility

·        
Transform your talents

·        
Revolutionise your processes

·        
Elevate your image’

Mr. Chambers’ presentation was followed by an engaging
fireside chat, which was moderated by CA Nandita Parekh, a senior member of the
Core group with expertise in the area of internal audit.

Mr. Chambers candidly answered questions on matters including
how to earn a seat at the (management) table, need for an internal auditor to
adjust the sails (i.e. the audit scope) to steer through the external and
internal changes, etc.

Questions posed by participants were also answered by Mr.
Chambers.  

The event witnessed an impressive turnout and was also
available for viewing through live streaming. The live streaming facility was
made available to members of IIA and IIABC.

“Public Lecture Meeting on Direct Tax Provisions of the
Finance Bill 2017” held on 7th February, 2017

The 52nd Lecture Meeting of the Society on the
Direct Tax Provisions of the Finance Bill 2017 by Senior Advocate Shri S.E.
Dastur was held at Yogi Sabhagruha, Dadar. This was 29th consecutive
year of address by Shri. S. E. Dastur.

Mr. S. E. Dastur (Speaker)

The lecture meeting was streamed live and was witnessed by
more than 15,000 persons including online viewers. President CA. Chetan Shah
welcomed and introduced the speaker Shri S. E. Dastur citing that his
intellectual charm is what makes this session special. He Shah also touched
upon the concept of liberalisation and digital revolution.

Shri Dastur started his speech by detailing the memories of
the previous budgets since 1948-49. He talked about the Finance Minister’s
speech having laid emphasis on the digital economy. He discussed the various
new insertions in areas of capital gains, changes in assessment and
reassessment procedures. He also explained the concept of primary and secondary
adjustment under transfer pricing.

After covering all significant provisions the eminent speaker
dealt with other amendments. He also covered provisions under the Companies Act
and Accounting Standards, the taxability of carbon credits. He commented on the
amendments to the Search provisions under section 132.

The audience was spell bound by his speech. His lucid
analysis of the provisions benefitted all those who witnessed his presentation.
The meeting ended with a huge round of applause and appreciation by the
participants.

FEMA Study Circle Meeting held on 8th February,
2017

FEMA Study Circle Meeting was held on the topic of
“Investment by Foreign Venture Capital Investor (FVCI) and in Real Estate
Investment Trust (REIT)” on 8th February, 2017 at BCAS Conference
Hall. The meeting was chaired by CA Shabbir Motorwala and led by CA Amit Dhoot,
CA. Monica Wadhwa and CA. Rashmi Shetty. It was great to have such
knowledgeable bench of leaders.

The speakers took participants not only through important
FEMA provisions applicable to Investment by FVCI and REIT but also issues
related to structuring, SEBI registration, important conditions etc.
which gave participants a 360 degree perspective of the subject. They also
explained the advantage of FVCI over FDI.

For investment in REIT, the speaker explained the challenges
why REIT is not yet picking up pace in India and how can India learn from other
countries.

The chairman shared his practical experience which was an
icing on the cake!

CPR workshop with medical camp held on 11th February, 2017

CPR (Cardio Pulmonary Resuscitation) training workshop with
medical camp was held jointly with Asian Heart Institute ( which stood as the
‘India’s Best Private Cardiac Hospital’ for two years in a row) on 11th
February, 2017 at BCAS conference Hall. Around 65 participants including members
and their families availed benefit of the workshop. The medical camp covered
the health checkup for random blood sugar, blood pressure, ECG and consultation
by doctor from Asian Heart Institute.


Participants in the CPR Workshop

The doctors conducted CPR workshop for the participants
enrolled and provided practical training for CPR in case of medical emergency
arising out of cardiac arrest which was very useful for understanding the
subject.

The doctors involved in the workshop were experts in their
field which helped in conducting the workshop successfully.

Report on Three Days 7th Residential Study Course
(RSC) on IndAS held on 16th -18th February, 2017

IndAS is being implemented in India in phases. FY 2016-17 is
the first year of applicability for phase I companies with comparatives for FY
2015-16. Several challenges are being faced by companies in this implementation
effort, more particularly on fair value, financial instruments, business
combinations and so on.

BCAS has always been in the forefront to assist professionals
to face challenges and be equip them to implement such changes. The 7th
BCAS IndAS Residential Study Course was planned by the Accounting and Auditing
Committee to address the implementation challenges being faced as well as to
impart knowledge of implementing IndAS to the professionals to have a smooth
transition for the corporate sector.

The RSC was organised from 16th to 18th
February, 2017 at Ras Resorts, Silvassa. This year’s RSC was structured with
three sessions based on case studies prepared by three eminent professionals
covering different aspects of IndAS implementation. These case studies based
papers involved group discussions through three groups formed amongst the
participants, led by knowledgeable group leaders. There were two more papers
for presentation by eminent faculty which were on other accounting standards
applicable to corporate and non-corporate entities viz. Accounting Standards
for non-IndAS companies and ICDS vs. IndAS. Another unique feature of this
year’s RSC was a Panel Discussion on Ind AS 109 – Financial Instruments –
Implementation Issues.

Immediately after the reporting of the delegates in the
morning, there was a group discussion on the first paper by CA. Arvind Daga on
“Case Studies on Business Combinations/Consolidation”. The case studies were
highlighting the various complexities involved in carrying out accounting for
business combinations and consolidation as well as the evaluation of the
relevant consolidation standard in specific circumstances.

CA. Arvind Daga

Later, post lunch, there was the inaugural session. The
session commenced with the inaugural address by the President of BCAS, CA.
Chetan Shah. He conveyed his satisfaction about the response received to the
course from all over India and was particularly happy to have a strong
participation from industry. Later, the Chairman of the Committee CA. Himanshu
Kishnadwala gave introductory remarks on the design and structure of the course
and the purpose of selection of the topics for group discussion as well as
presentation and panel discussion.

CA. Paresh Clerk

Immediately after the inaugural session, there was the
presentation on the first paper by CA. Arvind Daga, who aptly dealt with the
case studies and also covered the issues raised during the group discussion in
very immaculate manner. Thereafter, CA. Paresh Clerk took the participants
through a Presentation paper on “Accounting Standards for Non-IndAS Companies”,
where he dealt with the major changes in some of the standards to bring them
ont par with IndAS for recognition and measurement.

CA. Anand Subramanian

Second day started with group discussion on paper by  CA. Anand Subramanian on “Case Studies on
Real Estate/Infrastructure Companies”. The case studies highlighted the
intricate issues arising from Service Concession Arrangements as well as
Construction Contracts which is of utmost importance for recognition of revenue
for such companies. Later, he, made a presentation on his paper and shared his
vast experience, which was of immense value to the participants.


CA. Sudhir Soni

Post lunch there was group discussion on paper by CA. Sudhir
Soni on “Case Studies on Revenue Recognition – Impact on Different Sectors”.
The case studies dealt with typical situations in retail and pharma sectors and
also some other related issues.

During the evening at the request of BCAS, the newly elected
President of ICAI, CA. Nilesh Vikamsey addressed the participants’ through
skype, as,  though he would have wished
to, time constraints did not make it feasible for him to be physically present.
The three way Skype call wherein CA. Nilesh Vikamsey, President of BCAS CA.
Chetan Shah and the participants participated live was the first such effort by
BCAS. CA. Chetan Shah welcomed CA. Nilesh Vikamsey and CA. Himanshu Kishnadwala
also updated him about the conference. Later, CA. Nilesh Vikamsey addressed the
participants and briefed them about some IndAS implementation issues and how
ICAI is addressing them.

He also updated the participants regarding the efforts of
ICAI to be partners in nation building and also commended BCAS for its
activities which are complementing the efforts of ICAI towards the profession.

In the evening, there was a brief and crisp presentation on
the case studies by CA. Sudhir Soni which also provided expert insights to the
case studies.


CA. Gautam B. Doshi

Last day commenced with a Presentation on “ICDS Vs IndAS” by
CA. Gautam Doshi. In his immaculate style he provided bird’s eye view of the
major differences between ICDS and IndAS. Though not included in the original
schedule, at the request of the organisers, he also dealt with the impact of
MAT on IndAS financials on the basis of the proposed amendments to Income Tax
Act as per Budget 2017 for corporate preparing IndAS financials for the FY
2016-17.

Last session was a unique one, introduced for the first time
in IndAS RSC, which was Panel discussion on “IndAS 109- Financial Instruments –
Implementation Issues”. The panelists were CA. Gautam Doshi and CA. Charanjit
Attra. The discussion was ably moderated by Ashutosh Pednekar. The session was
appreciated by many participants as the posers which were discussed were very
relevant for banking, finance as well as insurance companies.

The concluding session was presided over by CA. Himanshu
Kishnadwala and he acknowledged contribution of the faculty as well as active
participation of all for the success of the RSC. Some of the participants gave
their views on the course and conveyed their satisfaction at the format and
structure of the course.

Interactive Session with Students for Success in CA Exams
held on 18th February, 2017

HDTI committee jointly with Rajasthan Vidhyarthi Gruh (RVG
Hostel) organised half day programme for students on 18th February
2017 at RVG Hostel, Andheri. Joint Secretary Sunil Gabhawalla welcomed the
participants.

 

L to R: CA. Sunil Gabhawalla, CA. Mukesh Trivedi and CA. Srinivas Joshi

In the first session, CA. Srinivas Joshi discussed about ICAI
Exams with the help of PowerPoint presentation, which included expectation from
students’ and their performance. Being past Central Council member of ICAI, and
having vast first-hand experience as a Member of Examination committee, he
shared in detail, information with insights as to how ICAI exams are conducted,
how confidentiality and professionalism is maintained, what quality and level
of knowledge is expected from students, balanced, consistent and 100 percent
advance study, writing habit, group discussion, problems solving, overcoming
and controlling time wasters, etc. were important guidance factors.

He also guided students on various important topics viz. how
to study, prepare, plan and manage time before the exams, how to actually write
papers, how to ensure success while writing papers and many other important
issues. Students received his presentation very well. Many doubts and incorrect
impressions were cleared.

Second session commenced with personal experience and tips
shared by three successful CAs. Piyush Lohia, Chinmay Dharap and Harshal Gupta
passing with 2nd, 5th and 34th rank
respectively in final exam of ICAI.

Young CA. Mudit Yadav, a success coach, TEDx speaker and a
motivator shared his personal journey from ordinary school and college career
to qualified CA effectively, with emotions and humour. He encouraged all students
to appear and prepare for CA exams with mindset, resolution and planning.

Convenor CA. Mukesh Trivedi proposed vote of thanks and CA.
Bharat Oza presented memento to the speaker.

Overwhelmingly satisfied and better guided, all Students
carried home clarity and insights with positive resolution to succeed in CA
exams.

About 70 students attended the programme.

BCAS joined hands as a knowledge partner with the Finance
and Investment Cell of Narsee Monjee College of Commerce and Economics for
their event “Insight Conclave 2017” held on the 18th & 19th
February 2017.

Insight Conclave 2017, NM College’s first ever business,
finance and economics meeting was held on 18th and 19th
of February 2017. Though it was the first year of the fest, it turned out to be
a huge success on account of its innovative events and outstanding speaker
sessions. BCAS joined hands as a knowledge partner for the Event.

The first day, 18th February, started with
Parliamentary Debate, which was based on the format of the Asian Parliamentary
Debate.This was followed by the main highlight of the day, THE PANEL
DISCUSSION, which was covered by CNBC Awaaz’s show “Pehla Kadam” and anchored
by the host of the show himself, Mr. Anil Singhvi, a CA himself. As the day
progressed, various events based on the lines of Finance and Business like
Moneyball, Newton’s Cradle, Empire and Corporate Restructuring took place.
Alongside, a special session in association with BCAS was organised which was
very well hosted by CA. Ameet Patel, Chairman of Taxation Committee at BCAS.
Apart from this there were eminent speakers from various fields. CA. Vaibhav
Manek talked upon the future of the profession.

The participants was really excited about the event ‘Coffee
with Luminary’, where Mr. Ambareesh Murty, founder and CEO of the online
furniture retail company, Pepper fry and Mr. Mahesh Murthy, the founder of
Pinstorm were invited. The most awaited event THE YOUTUBER’S WAY, had Mr. Sahil
Shah, member of the very famous East India Comedy that was a great end to the
day one of the event.

The second day was amazing, with exciting personalities and
series of Conclave along with brainstorming events awaiting the students. The
events targeted various sectors like the event Airwars which was based on the
pricing strategy of the airline sector. Other than this, an event named
Gaflawas also hosted where the participants had to defend themselves and their
company from the false allegations made against them.The Business Conclave had various
interesting and engrossing segments of which Pioneering Professions was one. It
saw speakers like Mr. Trishneet Arora, CEO of TAC Securities, Mr. Dhruv
Sitwala, two times Asian Billiards Champion and Mr. Neil D’Silva, the global
storyteller. Other segments had the speaker’s discussion on Disruption-is it
the new normal? which was conducted by Mr. Nayan Shah, founder Mayfair Housing
& Jitendra Gupta, founder Citrus Pay.

The day ended with a motivational speech by Ms.
Arunima Sinha, World’s First Amputee to climb Mt. Everest and has also climbed
the seven highest peaks. She described about her ill-fated train trip, the hell
that followed, why she decided to climb the Everest and how it is in the worst
tragedies that the human spirit learns to soar. It was a great motivation for
the students to learn about such life lessons from the heroine herself.

Society News

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Lecture Meeting on Global Services Transformation – Are Indian CA firms insulated? On 21st January 2015


This
lecture meeting was held at the Walchand Hirachand Hall, IMC,
Churchgate, Mumbai. Mr. Milind S. Kothari, Chartered Accountant shared
his insights on various aspects related to Global Services
Transformation and the questions facing Indian CA Firms. He started with
the current scenario based on our Economy, Government initiatives for
the Profession in India comparing it with other countries across the
globe. Challenges faced by the profession were also covered. The
ultimate conclusion was that a step-wise growth plan can lead small
& medium sized firms to a great level. Members present gained
immensely from the knowledge shared by the speaker.

Lecture Meeting on Important Income-tax Decisions of 2014 on 29th January 2015


This
lecture meeting was held at the Walchand Hirachand Hall, IMC,
Churchgate, Mumbai. Mr. Hiro Rai, Advocate covered recent landmark
decisions of the Supreme Court, various High Courts and Tribunals. Apart
from discussing the key inferences from these decisions he also
provided his views on the decisions and its implications for CAs and
other professionals. He covered a wide gamut of issues such as exemption
provisions; prosecution; wealth tax valuation; depreciation; deduction
provisions; parameters for stay applications; Transfer Pricing
applicability and other significant controversies of the past.

Lecture Meeting on Goods and Services tax – Curtain Raiser on 4th February 2015


This
lecture meeting was held at Walchand Hirachand Hall, IMC, Churchgate,
Mumbai. Mr. Satya Poddar, Ph. D. shared his expert knowledge on the
subject of Goods and Service tax. GST being a new tax regime, members
immensely benefitted from this lecture as the speaker covered in depth
the basics of GST, various new concepts under the expected tax regime,
the goals and objectives of the change in GST. How GST impacts all
aspects of business from cash flow, supply chain, pricing, profits and
compliance systems was deliberated upon. He also expressed his view that
taxes should not stand in between the growth. Queries raised by the
members were addressed to their satisfaction. More than 275 Members
present gained immensely from the knowledge shared by the speaker.

Lecture Meeting on “Anger – The Enemy Within” on 13th February 2015

This
lecture meeting was held jointly with The Chamber of Tax Consultants
under the auspices of Amita Memorial Trust at Jai Hind College
Auditorium, Churchgate, Mumbai. Brahmakumari Shivani delivered the talk
on Anger – The Enemy Within. She also taught how anger can be controlled
by just reimagining the scene which one could have created by getting
angry and reacting. According to her one should Say Less, Say Sweet
& Say low and one should make it a motto of life. More than 600
Members present gained immensely from the knowledge shared by the
speaker.

Half Day Workshop on Charitable Trusts on 13th February 2015

BCAS,
jointly with The Chamber of Tax Consultants, organised this workshop at
Jai Hind College, AV Room, Churchgate, Mumbai. The objective of the
workshop was to address various issues under general law and also under
Tax Laws. It has also covered a session on the provisions of the Foreign
Contribution Regulation Act. The following topics were covered at the
Workshop:

Programme on Real Estate Investment Trusts (REITs) & Infrastructure Investment Trusts (InvITs) on 7th February 2015

To
meet the demands of real estate and infrastructure sectors and to
encourage wider investor participation, investment vehicles such as Real
Estate Investment Trusts (REITs) and Infrastructure Investment Trusts
(InvITs) have been evolved. REITs typically offer investors regular
yields coupled with capital appreciation and a liquid method of
investing in real estate. Introduction of a tax framework by MOF is a
step in the right direction.

InvITs would reduce the pressure on
the banking system while also making available fresh equity to finance/
refinance infrastructure projects. Further, they will also assist in
un-locking tied up capital of developers, lowering domestic financial
institutions’ loan exposure and attracting foreign capital.

With
a view to have better understanding of the nuances/ engineering of
these new investment vehicles, the Corporate & Securities Laws
Committee of the Society organised this full day programme at the
Babubhai Chinai Hall, Walchand Hirachand Hall, Indian Merchants’
Chamber, Churchgate, Mumbai 400020, where the following topics were
covered:

Mr.
Nitin Shingala, President of the Society welcomed everyone. Mr. Kanu S.
Chokshi, Chairman of the Corporate & Securities Laws Committee of
the Society briefly introduced the scope of the Programme.

Guest
of Honour, Mr. Sunil Mantri, Chairman & MD, Mantri Realty Ltd.
thereafter shared the industry perspective and expectations on REITs
& InvITs.

Chief Guest, Mr. Ananta Barua, ED, SEBI, gave an overview of the SEBI regulations on the subject and inaugurated the Programme.

The programme was chaired by the eminent personalities mentioned above.

Having
regard to the overwhelming response, 80 participants were accommodated
by the Society for the programme as against the expected 60
participants.

The Programme was coordinated by Ms. Preeti Oza and Mr. Manish Sampat.

Seminar on Permanent Establishment – Critical Aspects on 30th January 2015


International
Taxation Committee of the BCAS organised this seminar at Hotel
Palladium, Lower Parel, Mumbai. Considering the increase in
globalisation, the Concept of Permanent Establishment (PE) has gained
significant importance due to its direct impact on the tax revenues of
the affected countries, both in India and in other countries. The
objective of the workshop was to bring out the importance and the far
reaching implications of the concept of PE and to update members in
practice and working in the industry on the various issues connected
therewith. It is no surprise that litigation on PE issues constitutes
more than 70% of the international tax decisions in the last few years.
The Following Topics were covered at the Seminar:

Introductory Seminar on Fraud Investigation and Forensic Audit on 17th January 2015


Infotech
& 4i Committee of the BCAS organised this seminar at the Walchand
Hirachand Hall, Churchgate, Mumbai. The objective of the seminar was to
open up a new practice area for Chartered Accountants – “Forensic Audit
and Fraud Investigation” which has emerged as one such area that has
received a lot of attention in the past few years. With the Companies
Act 2013 coming into force, there is bound to be an added impetus to
this specialised area which requires training and collaboration with
professionals from diverse fields such as lawyers, computer engineers,
detectives and enforcement specialists. The following topics were
covered at the Seminar:


RTI Workshop on 24th January 2015

The advance RTI workshop held together by PCGT, BCAS and IMC was attended by many RTI activists.the speakers for this workshop were Mr. Shailesh Gandhi (retired Central Information Commissioner) and Mr. Narayan Varma (RTI activist and former president of BCAS). Mr. Gandhi spoke about many personal experiences on RTI when he was the commissioner. he gave an in depth insight as to how the law should be understood to make it favourable to the common man. his knowledge on the topic helped everyone present at the workshop.
Mr. Varma’s experience also made the workshop a memorable one.

Half day event on the launch of publication on Anti-Corruption by Collective Action Project – 6th February 2015 at Mayfair banquets, Mumbai

Collective Action Project’s finale publication titled “Business Case for Anti-corruption in India: Principles, Economics and applications of transparency tools” was launched by Mr. Julio Ribeiro, retd. IPS and Chairman, Public Concern for Governance trust (PCGT) in a half-day event on February 06,   2015   at  Mayfair   Banquets,   Mumbai.  Around thirty representatives from public sector, private sector, academia and civil society were present at the book launch. Mr. Nitin Shingala, BCAS President and Mr. Narayan Varma, an RTI activist and Past President of BCaS, represented BCAS and BCAS foundation in this event.

Mr. Narayan Varma spoke about ways to combat corruption using RTI and shared his experience which benefited the attendees. mr. nitin Shingala, President Bombay Chartered accountants’ Society, was part of the panel discussion titled “Business Case for Anti-corruption in India: Principles, economics and application of transparency tools”.

He said that international conventions in the recent times have disallowed facilitation payment which was acceptable in many developed countries such as  the  uSa.  Post  9/11, G20 nations have started playing an active role to address graft. Talking about the indian legislative scenario, Mr. Shingala said all forms of corruption including money laundering has been adequately addressed in the country’s laws. However, the private sector’s indulgence in corruption is a big concern and legislations to its effect are not in place in india. He said that the private sector corruption needs to be vociferously pushed forward, and for this amending the Prevention of Corruption act (PCA) 1988 is a must.

“Action replay by a legend” – Standard Costing demystified on 6th February, 2015

The Infotech and 4i Committee organised this unique programme, at jai hind College auditorium, Churchgate mumbai where Mr. Narendra P. Sarda, Past President of ICAI, took a crash course of students on Standard Costing. It was a mesmerising event where Mr. Sarda without using any formulae by pure logic explained the fundamentals of Standard Costing and also touched upon marginal Costing. Over 800 students took benefit of this event and many more were turned down as the venue was filled to capacity and many senior members also attended the lecture to revive  old memories. the lecture has been put up on the Web TV (www.bcasonline.tv) and is available freely for the benefit of students.

Society News

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Sixteenth Intensive Study On Double Tax Avoidance Agreements held on 5th December 2015 to 30th January 2016 (6 Saturdays)

Sixteenth Intensive Study Course on DTAA’s was successfully conducted at IMC from 05.12.2015 to 30.01.2016 on six Saturdays from 9.00 am to 6.00 pm having 24 lectures on various articles of the DTAA ’s and other related topics.

In all 67 participants attended the course, of which 2 participants were from Pune and 1 from Hyderabad, 23 participants were members of BCAS and 44 were nonmember participants. The number of male participants was 38 and female participants 29.

The DTAA course was conducted in its unique classroom style set-up with eminent speakers, expert in International Taxation. As per the feedback received from participants, the course was highly appreciated and well received by them.

Wonders of the Night Sky held on 30th January 2016

The event, ‘Wonders of the Night Sky’ took place on the intervening night of 30 and 31 January 2016 at Umbroli village near Badlapur. The event was attended by BCAS members/ non-members and their respective families and friends. People from all age groups converged under the dark sky to observe the celestial beauty in full glory – stars, constellations and planets of our Solar System.

The event was led by the stellar guides from ‘Khagol Mandal’ – one of the biggest amateur astronomer group in Mumbai. Participants were made aware about the history and basic concepts on astronomy – development of astronomy over the centuries, types of stars (red giants, white dwarfs, binary star system), fathoming the gigantic distance between celestial objects (a distance measured in terms of speed of light – around 3 lakh km per second), patterns of stars – constellations or Nakshatras, types of telescopes, etc. During the Q&A session, participants were made aware about the lifecycle of a star, what are black holes and the fact that all of us are made of star dust!

Our stellar guide started unraveling secrets of the night sky. With the help of a Star Wars type laser tool – whose light seems to touch the stars, participants were able to identify and marvel at many constellations such as Cassiopeia, Orion, Virgo, Krittika (Pleiades).

Further, it was a treat to observe some of the brightest stars visible from earth – Sirius, Vega, Capella, Rigel, Betelgeuse and Rohini (Aldebaran). It was breath-taking to observe an open star cluster – where thousands of stars appear together, binary or two star system, Jupiter and its 4 moons, Mars and the beautiful rings of Saturn. Participants also enjoyed observing the moon and its craters in detail. Some of the participants were also given an opportunity to manoeuvre the telescope.

It was a wonderful and a memorable experience observing the night sky for the participants, which has sadly become difficult to experience in our light polluted city.

Intensive Workshop on “Internal Financial Controls, IND AS and Refresher on The Companies Act, 2013”– Coimbatore held on 5th & 6th February 2016

A workshop as it mentions was an intensive workshop, covering various components of an Internal Financial Controls, IND AS Overview and Refresher on the Companies Act, 2013. A workshop well designed keeping in mind the requirements of the New Companies Act, 2013 from the perspective of management compliance and Auditors’ certifications requirements. The Speaker Mr. Zubin Billimoria, Ms. Nandita Parekh and Mr. M. R. Thiagarajan shared their knowledge and experience over a period of 2 full days, in the most practical manner. Every topic was well covered and explained to the participants by way of practical examples well designed to understand the complexities of the Internal Financial control and IND AS in a simplest way.

The workshop held at The Residency, Coimbatore on February 5th and 6th, 2016, was well attended by 33 participants from various Industries and Practice arena and from various locations spread across South India. Speaker Mr. Zubin Billimoria explained the participants on the various nuances of IND AS implementation, Speaker Ms. Nandita Parekh covered the topics like Entity level controls, walkthroughs and testing methodology, Materiality, Financial Statement Assertions reporting on internal controls, etc. in detail and Mr. Thiagarajan explained the amendments to Companies Act, 2013. The interactions between the participants and speaker were commendable and considering the positive feedback received, the future plans for similar workshops in various other cities have already been kicked off.

Interactive presentation on success in CA exams held on 6th February 2016:

Report on interactive session for students’ on Success in CA exams;

ICAI declared the result of Final CA Exams on 16th January and of IPCC on 1st February 2016. Appreciating the need of the students, HDTI Committee of BCAS jointly with Rajasthan Vidhyarthi Gruh organised on 6th February 2016 Saturday, a half a day interactive session on the topic of ‘Success in CA exams’. It was held at the RVG Hostel auditorium.

The objective of this programme was to motivate and encourage the students who missed to succeed in the exams and also to guide them to prepare and perform better in exams. About 190 students took the benefit by attending this programme.

In the first session CA. Mayur Nayak effectively explained, many important points aptly punctuated with humour. He explained the importance of clarity of goal, attitude to win, discipline, consistency, effective time management and how to overcome distractions. He guided them to have Balanced food, effective study and relaxation. He emphasised that harmony of physical, emotional, intellectual and spiritual alignment would help them to face any challenges in life including that of exams.

In the second session CA. Shrinivas Joshi focused on CA exams. He explained at length as to how to prepare with qualitative studies for exams including use of appropriate reference materials. He shared the information that excellent study materials and faculties are available freely to clarify and guide on a variety of subjects covered in the syllabus. He explained at length as to what the examiner expects from the students and also cleared their doubts on misinformation and wrong impressions in the minds of the students about the ICAI exams and its results. He shared the important tips as to how to write the papers and manage time of three hours in exams. He answered all questions raised by the students.

Earlier in the inaugural session, the President welcoming students shared some inspiring real life success stories of some of the people who had braved all the odds and hardships and had successfully achieved their dreams. They received accolades and appreciations.

In this programme, students received excellent guidance, motivation and encouragement. They left the auditorium with greater resolve and determination fully charged.

Study Circle on Service Tax Implication on Redevelopment of Housing Societies – Session II held on 6th February 2016

Indirect Tax Study Circle Meeting was conducted at the IMC on 6th February 2016 to discuss various issues relating to redevelopment of property. The Meeting was led by CA. Shri Jayesh Gogri and chaired by Adv. Shri Badrinarayan L. The meeting was continued from the previous meeting which was conducted in the month of December 2015. Considering the significance of the topic and participation of the members, the meeting was conducted for two full sessions of around 90 min. each. In the first session, members discussed decision of recent decision of Supreme Court in Larsen & Toubro’s case on indivisible works contract. Adv. Badrinarayan addressed the members on intricacies involved in the subject matter for discussion and ratio of the judgment. In the second session, CA. Jayesh Gogri, took the members through various issues listed out for discussion. Presentation prepared by CA. Jayesh Gogri was appreciated by members and was circulated to all. Study Circle received encouraging response from the members and facilitated more than 90 Hours of professional learning, as more than 30 members participated in the meeting.

Lecture meeting on “My Experiments in Universal Love” under the auspices of Amita Memorial Trust held on 11th February 2016

The annual talk held under the auspices of Amita Memorial Trust jointly with Bombay Chartered Accountants’ Society and Chamber of Tax Consultants was held on February 11, 2016.

The speaker for the evening, CA. Rashmin Sanghvi narrated his personal experiences of the past 29 years – experiences of compassion, of service, and most of all, of universal love. Starting from helping street dwellers on Mumbai by giving them blankets on wintery nights, Rashminbhai soon felt the pain of the underprivileged and responded to the pain with strength of conviction and commitment. He took the audience through his work in the areas of educating the slum dwellers, helping the uneducated, underprivileged people become selfsufficient, implementing water management projects in the interiors of Gujarat and mentoring/supporting individuals and NGOs working in these areas. His talk, attended by more than 250 people, created awareness of the vast problems, showed the impact that one person’s love and commitment can make and inspired many to rethink their mission and priorities in life. His simplicity, humility and inner strength left a lasting impression.

The inspired talk ended with remembering CA. Amita (Shah) Momaya, a young member of the BCAS family, who also spread the message of Universal Love during her short but inspiring life. She left this world on January 31, 1987 but continues to spread messages of peace and purpose after 29 years of her departure.

One Day Seminar on “Media and Entertainment Industry” held on 12th February 2016

The Seminar on Media and Entertainment Industry was conducted by the International Taxation Committee of the BCAS on 12 February 2016 at St. Regis Hotel (Palladium Hotel). This seminar was organized jointly with Accounting & Auditing Committee and Indirect Taxation Committee. The speakers at the seminar and the topics covered were as under:

Mr. Jehil Thakkar on Know the industry – current issues – Business models, cash flows, vehicle for investments, etc. (Industry overview and typical situations)

Mr. Sachin Shah on Direct Tax Issues in media and Entertainment Industry, including: Cross border taxation of entertainers, sportsmen and news channel T ransfer pricing provisions, as may be applicable

Mr. Utkarsh Sanghvi on Indirect tax issues in media and entertainment industry, including: Service tax, VAT and customs.

Mr. Koushik Balasubramanian on Accounting & Auditing aspects-Revenue recognition, Multi rights, Valuation etc.

The seminar was attended by more than 50 participants. The seminar became very informative and provided an overview of industry as a whole and detailed technical analysis on taxation, accounting and auditing aspects. The Seminar provided an insight into the industry and focused on the issues faced in the industry and the current trends in respect of the Media and Entertainment industry. The sessions at this seminar were all interactive and generated good amount of debate among the participants and the presenter.

Study Circle on “Liberalisation in foreign direct investment and recent amendments” held on 16th February 2016

CA. Pankaj Bhuta and CA. Natwar Thakrar led the study circle meeting on “Liberalisation in Foreign Direct Investment And Recent Amendments” on 16 February 2016. The group leaders discussed Press Note No. 12 (2015) by which the Government has announced liberalisation policy for FDI in many sectors including Real Estate and LLP. The Group discussed and deliberated about FDI policy qua investment in LLP, definition of “Control” and “Owned” in relation to the LLP, downstream investment by LLP, Investment by NRI etc. In all the participants benefitted immensely with the interactive session.

Lecture Meeting on “Important Case Laws of 2015 on Indirect Taxes” held on 17th February 2016

Lecture Meeting on Important Case Laws of 2015 on Indirect Taxes held on Wednesday, 17th February 2016 at IMC Hall Churchgate Shri. K. Vaitheeswaran dealt with various important case laws of 2015 on Indirect Taxes. He discussed and deliberated upon case laws in the field of Central Excise, Customs, Service Tax and Sales tax. He dealt with intricacies of the cases with an impact analysis.

He explained the concepts of valuation, works contract, Intellectual Property Rights, etc. during the course of his presentation. His experience was well displayed during the question answer session.

Lecture Meeting on “Important Income Tax Decisions of 2015” held on 24th February 2016

Lecture Meeting on Important Income Tax Decisions of 2015 was held on Wednesday, 24th February 2016 at the Jaihind College Auditorium.

Shri. Hiro Rai dealt with the recent Supreme Court rulings upfront payments, income from house property vis-a-vis business income, 80IB(10), penalties, etc, which will have a far reaching impact on various pending/controversial issues. He then discussed certain Bombay High Court decisions on bogus purchases, sale of FSI/TDR and search. He pointed out that the recent amendments to section 263, if not used judiciously, will give wide powers to the Commissioner to reopen and reassess the completed assessment. He ended his talk with certain recent important rulings on Transfer Pricing. The session was truly enthralling.

‘Samvad’ with Hon. Minister, Mrs. Sushma Swaraj

BCAS was invited to present before Mrs. Sushma Swaraj, Cabinet Minister for External Affairs, who was asked by the PM to conduct a ‘Samvaad’ session to receive direct feedback from the Chartered Accountants fraternity on tax matters. She appreciated the points suggested by the Society especially on the attitude of the tax officers towards the assessees. President Raman Jokhakar, Vice President Chetan Shah, Jt. Secretary Sunil Gabhawalla and Co Chairman of Taxation Committee Ameet Patel represented the Society. The Hon. Minister was appreciative of the various points presented on Direct and Indirect Taxation in brief and she reiterated some of the points given by the BCAS team in her concluding remarks. The Society was requested to send those points in summary form through the Hon’ble MP Mr. Kirit Somaiya, who initiated this innovative interactive meeting. The President personally handed over Pre-Budget Memorandum prepared by the BCAS, to the Hon’ble Minister. The Minister mentioned that a meeting such as this one should be held between the CAs and the makers of tax laws so that points could be deliberated in detail.


Study Circle on “Liberalisation in Foreign Direct Investment and Recent Amendments – Session II held on 25th February 2016

Mr. Pankaj Bhuta and Mr. Natwar Thakrar continued the discussion on “LIBERALISATION IN FOREIGN DIRECT INVESTMENT AND RECENT AMENDMENTS”. The group leaders discussed recent amendments notified by the RBI through Notification No. 361 and 362 under which FDI in many sectors have been liberalised. The group discussed and deliberated about amendment in “Investment by a Non-Resident Indian (NRI) on a Stock Exchange on Repatriation basis under the Portfolio Investment Scheme (Schedule 3, FEMA/20 “Investment by a Non-Resident Indian (NRI), on Non-Repatriation basis” (Schedule 4/FEMA20) , FDI in LLP (Schedule 9/FEMA20), FDI in other sectors. The group leader also presented a comparative analysis between the new Notifications and Press Note 12.

Society News

Indirect Tax Laws Study
Circle

 

Meeting on “Goods and Services
Tax–Discussion on various issues on Composite Supply / Mixed Supply, WCT and
Valuation- II” held on 16th January, 2018 at BCAS Conference Hall

 

In continuation of the last meeting,
Indirect Taxation Committee conducted a Study Circle Meeting on “Goods and
Services Tax–Discussion on various issues on Composite Supply / Mixed Supply,
WCT and Valuation- II” at BCAS Conference Hall which was addressed by CA. Bijal
Doshi. The Speaker discussed upon the balance case studies which could not be
covered in the previous meeting and completed the discussions on the subject.

 

The meeting was quite interactive and highly
appreciated by the participants. Participants shared their practical experience
during discussion and benefited a lot from the session.

 

Special Joint Study Circle Meeting on “US
Tax Reforms- Impact of Domestic and International Provisions” held on 22nd
January, 2018 at BCAS Conference Hall

 

International Taxation Committee organised a
Special Joint Study Circle Meeting on 22nd January, 2018 at BCAS
Conference Hall which was addressed by Mr. Shishir Lagu, Mr. Atul Deshmukh and
Mr. Kavit Sanghvi. All the Study Circles and Groups which operate under the
Committee were part of this meeting which had a common interesting topic. The
speakers covered the latest US tax reforms in detail. They also explained the
nuances of the differences in US tax laws due to these reforms and the impact
they can have on the Indian entities which have invested in USA and doing
business there.

 

The meeting was very interactive and the
speakers answered all the queries raised by the participants. The participants
benefitted a lot from the rich experience of the learned speakers.

 

Lecture Meeting on “Implementation &
Issues on E-way Bill-Way Forward” held on 24th January, 2018 at BCAS
Conference Hall

 

Mr. Pramod Bargaje
Dy. Commissioner-LTU4, Mumbai


Mr. Chandrashekhar Thakur,

Dy. Commissioner

Indirect Taxation Committee organised the
captioned Lecture Meeting at BCAS Conference Hall where the eminent faculty
from the GST Department, Govt. of Maharashtra – Shri Pramod Bargaje, Dy.
Commissioner-LTU4, Mumbai, Shri Chandrashekhar Thakur, Dy. Commissioner and
Shri Mukund S. Panhalkar, Asst. Commissioner were invited to address the
members. The objective of the meeting was to spread awareness about the
‘Implementation & Issues on E-way Bill – Way Forward’ and equip the
businesses and professionals with the knowledge, to keep themselves well
prepared for its compliance. The Goods and Services Tax Act was implemented
earlier this year. The Act contains several features, one key anti-evasion
measure amongst these is the E-Way bill reporting system. Recently, the Goods
and Services Tax Council decided to roll out E-way bills for interstate
movement of goods from 1st February 2018 and hence, importance of
this meeting.

 

The speakers enlightened the participants
about the salient constituents of E-Way Bill, issues likely to be encountered
by assessees going forward and the process and procedure to be followed, to
overcome any hindrance in successful implementation of the bill. The faculty
also explained the legal aspects of E-Way Bill and conducted a mock trial of
the actual filing process, to impart practical training to the members.  

 

The meeting was also live streamed for the
participants who could not attend in person. Around 425 participants attended
the meeting including online viewers. It was indeed a very enriching experience
for the participants who benefitted a lot from the meeting.

 

ITF STUDY CIRCLE

 

Meeting on “Select Decisions on
International Tax” held on 30th January, 2018 at BCAS Conference
Hall

 

ITF Study Circle organised a meeting on the
subject which was addressed by CA. Deepak Kanabar. The Speaker briefly gave an
overview of the importance of recent judicial precedents and the ever
increasing controversies over the concept of Permanent Establishment and
Business Connection in India. He took the Group through the following decisions
discussed at length.

 

–   Martrade
Gulf Logistics FZCO-UAE [2017] 88 taxmann.com 102 (Rajkot – ITAT)

– 
  Formula One World
Championship Ltd 2017 – 394 ITR 80 (SC)

–   Production
Resource Group – 2018–89 Taxmann.com 219-AAR

 

There was active participation from the
members present with various nuances of the concept of PE and business
connection being brought out. The attendees benefitted a lot from the session.

 

“GST Summit” at
“Finbridge Expo” held on 3rd and 4th February, 2018.

 

As a part of its ‘Networking’ initiative,
Bombay Chartered Accountants’ Society joined as the “Knowledge Partner for GST
Summit” at the “Finbridge Expo” held on 3rd and 4th February,
2018 at Nehru Centre, Worli. Finbridge Expo is an exhibition and conferences
platform which caters specifically to Financial Services & Technology
industry. They requested the Society to share its expertise on GST with their
participants.

 

On 3rd February 2018, at the
“Finbridge GST Summit”, three of our eminent speakers represented our Society.
Our panel of GST experts addressed on the subjects given below:

 

CA. Shreyas Sangoi shared his expertise on
‘GST on Stock Brokers.’ 

CA. Samir Kapadia gave valuable insights on
‘GST on Financial Services (Excluding Stock Brokers & Banks).’

 

CA. Mandar Telang shared knowledge about
‘GST on Software / Technology Services.‘

 

The Summit received an overwhelming response
from the participants and the visitors with knowledge sharing and enriching
experience gained by them on these GST topics.

 

“Public Lecture Meeting on Direct Tax
Provisions of the Finance Bill 2018” held on 6th February, 2018


Adv. S. E. Dastur


The Public Lecture Meeting of the Society on
the Direct Tax Provisions of the Finance Bill 2018 by Senior Advocate Mr S.E.
Dastur was held at Yogi Sabhagruha on 6th February, 2018. This was
the 30th lecture meeting by him and the 53rd of the
Society. 

 

The lecture meeting was live streamed and
witnessed by more than 12,000 persons including online viewers. The meeting
commenced with the singing of National Anthem. CA. Narayan Pasari, President,
BCAS welcomed and introduced the speaker Mr. S. E. Dastur citing his
intellectual charm that makes this meeting more special. He also touched upon
the Government initiatives on Agricultural Sector, Rural India and Health
Coverage etc. in the Budget Proposals announced by the Finance Minister.

 

CA. Narayan Pasari, commended the
contribution of Mr. S.E.Dastur in making the Budget Lecture Meetings of BCAS so
special, through his insightful analysis year after year. He informed the
gathering that this will be Mr. Dastur’s last budget lecture meeting at BCAS.
The Society also felicitated Mr. Dastur on this occasion. This was followed by
display of a small film on the journey of Lecture Meetings by Mr. S. E. Dastur
over the years and his association with BCAS, which was sheer nostalgia.

 

Mr. Dastur started his speech by detailing
the historical memories of the previous budgets of various FMs since 1948-49.
He talked about the Finance Minister’s speech having emphasis on the various
measures announced in the budget. He also discussed on the various new
insertions/amendments in areas of Long Term Capital Gains, Definition of
Accumulated Profits, Financial Transactions and changes in Assessment &
Reassessment procedures etc. The talk also covered other aspects of the Direct
Tax Provisions i.e. Income from Business and Profession, Amalgamation, Change
in Shareholding, Exemption from Tax under Sec 10 (23C) and Sec 54EE (LTCG),
application for Charitable Purposes, Rationalisation and Transparency etc. which
were part of Finance Minister’s speech.

 

Mr. Dastur gave his explicit views on every
important tax proposal notified under the Finance Bill 2018.

 

The audience were mesmerised by his speech
and benefitted a lot. The meeting ended with a huge round of applause and
appreciation by the participants.

 

HDTI Study Circle

 

Meeting on “Positive Ageing & Geriatric
Medicine” held on 13th February, 2018 at BCAS Conference Hall

 

HDTI Study Circle organised a meeting on
“Positive Ageing & Geriatric Medicine” on 13th February, 2018 at
BCAS Conference Hall which was addressed by Dr. Arvind Pednekar. Dr. Pednekar
gave the presentation on Ageing and Geriatric problems being faced by the old
people with advancing age, be it physical, mental or spiritual. He explained
the causes and effects of old age problems and preventive steps i.e. Exercise,
Yoga and Meditation amongst others to overcome such life threatening
hindrances.

 

Majority of the participants in the meeting
belonged to the middle and old age group. At the end, there was Q&A session
where the Speaker responded to all the queries raised by the participants.

 

The meeting was very interactive and the
participants benefitted a lot from the session.

 

“Analysis of Economic Survey & Budget
2018” held on 15th February, 2018 at BCAS Conference Hall

 

International Economics Study Group under
the aegis of International Taxation Committee conducted a meeting on Analysis
of Economic Survey & Budget 2018 on 15th February, 2018 at
BCAS Conference Hall. The group discussions were led by Group Leaders CA. Kapil
Sanghvi, CA. Harshad Shah, CA. Rashmin Sanghvi & CA. Milan Sangani, who
brought out very interesting perspective on Global and Indian economy and the
challenges facing Indian Economy.

 

The speakers presented their views and findings
on Analysis of Economic Survey & Budget 2018. Some key points of discussion
were: (i) State of Indian Economy-Sweet spot to sudden fall (ii) GDP Growth
trends (iii) Rupee appreciation (iv) India`s decoupling (v) Twin Balance Sheet
challenges (vi) Inflation trend (vii) Oil Price increase (viii) Investment and
saving slowdown (ix) 4 headwinds (hyper globalisation repudiation, pre mature
de industrialisation, human capital regression & agriculture stress).
Adverse impact of climate change on agriculture and concept of export of water
was also explained. The group also deliberated on Modi Care (World`s largest
national health protection scheme), health export trend, agriculture and rural
economy and health & education.

 

The meeting was very informative and the
participants went enriched from the session.

 

Direct Tax Laws Study
Circle

 

Meeting on “Recent Judgements under Direct
Tax laws” held on 22nd February 2018 at BCAS Conference Hall

 

Direct Tax Study Circle organized a meeting
on ‘Recent Judgements under Direct Tax laws’  
at  BCAS Conference Hall addressed
by the Group Leader for the session Adv. Dharan Gandhi.

 

The Speaker mentioned that being tax
professionals, it is utmost important to keep pace with the important decisions
pronounced recently by various judicial authorities and thus briefly gave an
overview of the recent important rulings and decisions as enumerated below:

 

Decision

Issue relating to

– National Travel Service vs. CIT [CA No. 2068-2071/2012
(SC)]

Deemed Dividend

[Section 2(22)(e)]

– IL and FS Energy Development Co. Ltd. 399 ITR 483(Del)

14A disallowance

– H T Media Ltd. vs. PCIT 399 ITR 576(Del)

14A disallowance

– PCIT vs. Ramniwas Ramjivan Kasat 248                             Taxman 484(Guj)

Cap Gain vs Business Income

– CIT vs. Modipon Limited 299 CTR 306(SC)

Allowability of deduction u/s. 43B

–  Rajat B Mehta vs. ITO ITA No. 19/Ahd/2016 (Ahd)

Deduction u/s. 54

–   Paradise Inland Shipping Pvt. Ltd.  400 ITR 439 (Bombay)

Addition u/s. 68

–  Bengal Finance & Investments Pvt. Ltd. ITA 337/2013
(Bom)

14A disallowance vis-a-vis. Book profit
u/s. 115JB

–   CIT vs. Sinhgad Technical Education                  Society 297 CTR 441(SC)

Assessment u/s. 153C

–   CIT vs. Glenmark Pharmaceuticals Ltd. 398
ITR 439(Bom)

Interest u/s. 234B

–   Maharaj Garage & Company vs. CIT 400
ITR 292 (Bombay)

Penalty u/s. 271(1)(c)

–     Sanjay Bimalchand Jain vs. Pr CIT ITA
No. 18/2017 (Bombay)w

Capital gain vs. Business income [Penny
stock]

–     Pr CIT vs. Prem Pal Gandhi ITA 95/2017
(P&H)

Penny stock

 

 

The meeting was quite interactive and the
participants raised many queries which were thoroughly answered by the learned
Speaker.

 

16th Residential Leadership
Retreat held on 23rd and 24th February, 2018

 

HDTI Committee organized its Sixteenth
Residential Retreat on 23rd and 24th February 2018, at
Rambhau Mhalgi Prabodhini (Training Centre) on the theme of ‘Saptapadi of
Happiness in family’ (Seven vows of happiness in family) which was addressed by
Mr. Mahendra Garodiya.

 

Past President
CA. Mayur Nayak in his key note inaugural address remembered Late Shri
Pradeepbhai Shah, the architect of such retreats. He complimented the Chairmen
of the Committee, all these years for this course. Appreciating significance of
such residential workshop for shaping the better values in life, he touched
upon Family and Happiness. Life coach Mahendra Garodiya, an avid reader and
strong follower of philosophy propounded by Chanakya, was ably assisted by
Deepa Garodiya in guiding the participants through important concepts and vows
to be taken by the family. In his study material, following key points were
covered:

 

–   Always
communicate your expectations on core important values of life viz:
Security, adventure, importance, love, growth and contributions. While,
communicating with the spouse and members of the family, it is always better to
be respectful than to be right. The most important to keep in mind is never to
give unsolicited advice.

 

–   Build
a culture of values appreciating interdependence. Always put others
first. Understand before being understood. Be honest and truthful in each
relation. Involve each and every member of the family while taking important
decision.

 

–  Define
Common Goal covering self, spouse and family.

 

–   Dharma
Nishtha: Dharma is not religious ritualism. Understand the core
personality of the self, spouse and family members on parameters of three Gunas
i.e. Rajas, Tamas and Sattva. Understand and appreciate that dharma is root
of happiness, artha is root of dharma, rajya is root of artha, Victory is the
root of rajya, respect is root of victory, therefore one ought to respect
elders and offer service to them.

 

–   Family
Legacy: Understand and appreciate that money is only a means to an end
and not an end in itself. Money can facilitate security, status, enjoyment,
control, opportunity and growth. By giving money for welfare, you get better
rewards

 

–   Growth:
Saptang (Holistic): There are seven dimensions of growth and happiness, Swamy
(Head of the family), Janpad (children and Family members), Dand (Family rules
and behaviours), Mitra (family coach), Kosha (family wealth and culture),
Amatya (supporter to the head of the family) & Durga (family name, fame and
brand). When all these aspects are correctly balanced, they bring in happiness.

 

In the evening on the first day one of the
participants presented nice details of Maharashtra’s folk art Warli painting.
It was followed by audio visual film titled “Down the Memory Lane” featuring
photographs and glimpses of earlier HDTI RRC. It was a tribute to Late Shri
Pradeepbhai Shah and many others who actively participated and encouraged
Leadership retreats.

 

In a concluding session on second day, each
participant exchanged rose with other participant expressing gratitude and
appreciation and carried home beautiful memories of joy and happiness.

 

Interactive session with Students for
“Success in CA Exams” held on 25th February, 2018

 

HDTI Committee jointly with RVG Educational
Foundation organised an Interactive session with Students called “Success in CA
Exams” on 25th February, 2018 at RVG Hostel, Andheri which was
addressed by the speakers CA Mangesh Kinnare and CA. Kartik Iyer.

 

President CA. Narayan Pasari welcomed the
students and inspired them to work sincerely, diligently as CA Students during articleship
and also while preparing or appearing for CA exams. He exhorted that Youth is
the future of our country for the Nation building.

 

In the first session CA. Karthik Iyer shared
his experience and the technique of macro and micro planning as to how to
prepare a time table and study at a time as per one’s own biorhythm. How to
balance between studies of various subjects and avoid distractions. He
suggested to appear for at-least two mock test papers for each subjects before
the exams. This enables the student to evaluate his limitation, speed, and
ensure that he attempts a full paper.

 

In the second session, Mr. Mangesh Kinare,
Member of Central Council of ICAI and Ex-Vice Chairman of Board of Studies and
Ex-Member, Examination Committee shared his views from the perspective of the
Institute. He clarified many doubts of the students and advised them to read
study material and practice manuals of ICAI. He mentioned that the website and
monthly Students Journal of the Institute cover very interesting study material
for the benefit of the students.

Mr. Phaneesh Reddy from Vijayawada who
scored 4th rank in the Final exam of ICAI in November 2017 shared
his views through a video recorded message.

 

The session was very interactive and
speakers gave very useful insights to the students to prepare and excel in the
CA exams

 

Indirect Tax Laws Study
Circle

 

Meeting on “Goods and Service Tax – Clause
by Clause Analysis of E-way Bill Provisions and related FAQs” held on 26th
February, 2018 at BCAS Conference Hall

 

Indirect Tax Laws Circle conducted another
meeting on 26th February, 2018 on the subject “Goods and Service Tax
– Clause by Clause Analysis of E-way Bill Provisions and related FAQs” at BCAS
Conference Hall. The discussions were led by group leaders CA. Saumil Kapadia
and CA. Samir Kasvala under the chairmanship of CA. Janak Vaghani. The speakers
dealt with the clause wise analysis of E-Way Bill provisions and related
queries in depth. Members also shared their practical experience which was
beneficial for one and all present in the meeting. 

 

The meeting was highly appreciated by the
members for the valuable insights given by the speakers. _

BCAJ March 1969

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BCAJ March 2008

GAPs in GAAP

Accounting Standards

The implementation of IFRS required a well coordinated
approach among various regulators. Understanding this need, the Ministry of
Company Affairs (MCA) set up a high powered group comprising of various
stakeholders such as NACAS, SEBI, RBI, IRDA, ICAI, IBA and CFOs. The core group
was supported by two sub-groups. The sub-groups will have further meetings with
regard to the roadmap for banking and insurance companies which is still under
discussion.


The author completely supports the roadmap. This is a
historic event — one that would catapult India, its entities and finance
professionals to much greater heights.

Under the roadmap, there would be two separate sets of
Accounting Standards u/s 211(3C). The first set would comprise of standards that
are converged with IFRS and would apply to specified companies in phases. The
second set, comprising of existing Indian accounting standards, would apply to
all other companies, including SMEs.

Phase 1 companies will prepare their opening IFRS balance
sheets on 1 April, 2011. Phase 1 would apply to listed and non-listed companies
with a net worth of greater than Rs 1000 crores, and to companies whose
securities are listed on a foreign stock exchange. If one has a calendar year,
then the opening IFRS balance sheet will be prepared not on 1 April, 2011 but 1
January, 2012. The listing requirement will be with regard to securities and
will include a lot of listings in addition to shares, such as ADR, GDR, FCCB,
etc.

Phase 2 companies will prepare their opening IFRS balance
sheets on 1 April, 2013. Phase 2 would apply to listed and non listed companies
with a net worth of greater than Rs 500 crores.

Phase 3 companies will prepare their opening IFRS balance
sheets on 1 April, 2014. Phase 3 would apply to all other listed companies. IFRS
standards will not apply to non-listed companies with a net worth of less than
500 crores and to SMCs, though they can voluntarily apply to IFRS.

The draft of Companies (Amendment) Bill proposing changes to
the Companies Act is under preparation. The amendment is required to make the
Companies Act consistent with the requirements of IFRS. These changes include
section 391, 394, 78, 100, Schedule VI, Schedule XIV, etc. A new section will
also be introduced to make consolidation mandatory under the Companies Act, even
for non-listed companies.

IFRS standards will be notified by 30 April, 2010. The author
does not expect any carve-ins or carve-outs, and it would be possible for Indian
entities to provide a dual statement of compliance both under IFRS, as adopted
by India, and IFRS, as issued by IASB. However, one should be prepared for any
elimination of alternate accounting treatments provided under IFRS standards.
For example, in the case of long-term employee benefits, it is possible that
actuarial gains and losses may have to be recognized in the P&L account in full,
and the corridor approach or full recognition in ‘Reserves’, allowed under IFRS
of IASB, is not allowed under IFRS as adopted in India.

Net worth has not been defined, but probably it means what we
have always been used to: share capital and free reserves. It would include
securities premium but not fixed asset revaluation reserve. P&L debit balance
should be subtracted from share capital and reserves. Net worth would be based
on Indian GAAP stand-alone account of the entity.

To determine applicability, the net worth for which balance
sheet date should be considered? Theoretically, it could be 31 March 2009, 2010
or 2011 or all three. It is unlikely to be 31 March, 2011 for practical reasons.
Doing the net worth test based on the balance sheet date of 31 March, 2011, will
leave entities with little or no time to prepare for IFRS for the year 2011-12
(actually the first quarter of 2011-12 for listed entities). Therefore, in the
author’s view, the test should be done based on the balance sheet on 31 March,
2009. The MCA should confirm this by way of guidance.

Questions have been raised on whether IFRS comparative
numbers are required from 2010-11. Whilst this will be clarified in further
guidance, it would make enormous sense to prepare IFRS comparatives for the
following reasons:


1. IFRS comparatives (2010-11), instead of Indian GAAP
comparatives, would make 2011-12 IFRS financial statements meaningful to all
stakeholders

2. Preparing IFRS from 2010-11 will enable one to be ready
for robust IFRS reporting in the first quarter of 2011-12

3. The 2011-12 IFRS financial statements will be compliant
both with Indian law and IFRS, as issued by IASB. Hence dual statements of
compliance can be made by entities.

4. If 2010-11 IFRS comparatives are not prepared, then
effectively 2011-12 IFRS statements become comparatives for 2012-13 IFRS
statements. Under IFRS 1 framework, the comparative year’s accounting policy
should be consistent with the first IFRS financial statements. This may mean
that the already prepared and published numbers of 2011-12 IFRS financial
statements may undergo a change subsequently to make them consistent with the
2012-13 IFRS accounting policies.


Therefore, from practical considerations, the transition date
should be 1 April, 2010, instead of 1 April, 2011.

There may be good news for early preparers, but one that
needs endorsement by further guidance from the MCA. If an entity has already
prepared/published IFRS financial statements, then on 1 April, 2011 one does not have to reconvert again. In other words under IFRS,
an entity can be a first time adopter only once.

Another related question is whether entities not covered at all in any of the phases can adopt IFRS or those covered in later phases can apply IFRS in earlier phases. The roadmap is clear that a company which is not covered under any of the phases may adopt IFRS on a voluntary basis. The author believes that similarly, a company covered in later phases should be allowed to apply IFRS early. Since the issue is an important one, the MCA should provide guidance on the matter as soon as possible. Allowing voluntary adoption of IFRS will help a subsidiary, joint- venture or associate of a company covered under the roadmap to use their IFRS accounts prepared for group reporting and consolidation purposes, and for stand-alone statutory financial reporting also.

Changes in various other legislations would be required, e.g., SEBI will need to change the require-ments relating to interim financial statements to make them compliant with IAS 34. The RBI will need to look at its prudential norms, incorporate appropriate prudential filters, etc., as and when IFRS becomes mandatory for banks and so on.

A key concern has been the IFRS implications with regard to income-tax. Recently a committee has been set up by CBDT to look into the impact of IFRS on income tax computation and income tax legislation. The Indian tax authorities will certainly need some time to look into this whole aspect as well as to make appropriate changes to the Income Tax Act, if required. It is, therefore, likely that for some years Indian GAAP may continue as the base for determining taxable income. Besides, it is almost unlikely that some assessees in India will be taxed based on IFRS numbers and others on Indian GAAP numbers. In simple words, for some years to come, an entity’s ERP system should enable generation of both Indian GAAP and IFRS numbers: IFRS for statutory reporting and Indian GAAP for income -tax purposes. Similarly, there would be indirect tax issues. For example, under IFRS, revenue numbers would change and that may have impact on the license fees that telecom companies pay or VAT, etc.

The MCA should provide immediate guidance on these various issues. There will be many challenges, but they come with exciting opportunities. With IFRS, India can aspire to become the accounting hub of the world. Finally, a quote from Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent, but the most responsive to change”.

Vikram Aur Vetal

Cancerous Corruption

Vikram was fond of moving around in the graveyard in the
horrifying night to catch Vetal after day-long practice as chartered accountant.
For Vikram, friendship with Vetal was real education. Vetal being a spirit of
intelligent human frustrated in his lifetime, was still on the earth
posthumously to find answers to innumerable questions lingering in his mind
during his stint as human being. He developed friendship with Vikram. After
playing hide and seek game, Vikram used to catch Vetal in the wee hours of
morning. Then he would put Vetal on his shoulder and tread through the woods of
graveyard. Vetal would laugh weirdly in the silence of the graveyard and
thunder :

“So Vikrambhai, you succeeded to catch me once again, keep
walking, don’t look back, if you speak a word I will vanish. Well, I would tell
you a story of a spiritual guru like Bhagwan Rajneesh, Yogi Mahesh or Satya
Saibaba, well, you are clever enough to get the lead . . . . so our spiritual
guru Baba Ramjay was a very revered person. It was believed, after spending many
years in seclusion somewhere in the high altitudes of Himalaya, Baba established
connection with the almighty. He taught his confused disciples how to live life
in peace and tranquility, how to detach the mind from the mundane world and seek
solace beyond the present life. It was not surprising that he had disciples all
over the world, rich and wealthy. In search of peace of mind they were
squandering their wealth for Baba Ramjay. It seemed that Baba Ramjay’s
philosophy of life was “high living and high thinking”. Over a period he amassed
huge wealth in cash and kind through his charitable trusts or otherwise.
Obviously he was being spied on by the Income-tax Department. I mean he was on
the radar of the Department. A raid was conducted on Baba’s Ashram. On that day
his disciples were celebrating the most auspicious day, Baba’s birthday. It was
believed that he was incarnation of great Buddha. Baba chanted “Om Shanti Shanti
Shanti”. One of the disciples in the close circuit of the Baba announced :

“Ladies and gentlemen, for your kind attention those who wish
to express their gratitude towards our revered Baba Ramjay, we have kept
offertory box”

There was a sudden rush towards the offeratory box. What a
phenomenal impact Baba Ramjay had on the minds of his disciples. They were ready
to sacrifice, though not everything, but something which the government cannot
do through full-fledged tax laws. I think the Finance Minister should learn a
lesson from him how to mobilise funds. Jokes apart, Vikrambhai, Baba was about
to leave the “Dhyan Mandir” (meditation centre). A tall and middle-aged person
full of bureaucratic arrogance barged into the Dhyan Mandir along with his
assistants. Without losing much time he disclosed that he and his assistants
were from the Income-tax Department. He ordered all present not to leave the
place till his further order and asked to hand over cellphones to one of his
assistants. Baba Ramjay sank back in the sandal wood throne. When Baba was
trying to use his cellphone, the alert officer recovered the cell-phone from
Baba. Inwardly Baba was very furious at the audacity of the officer. But Baba
kept chanting “Om Shanti Shanti”. What else he could do ? nothing. The alert
officer was the chief of the raid team. He proceeded further. He showed the
search warrant to Baba Ramjay. Baba pretended to be still in trance of
meditation and said, “My child, I see great future for you, I can read from your
face, believe me, our tryst is pre-planned by the destiny . . . . . Om Shanti
Shanti.”

For a few moments the chief forgot his duty and bowed before
Baba to touch Baba’s feet. But after finishing the ritual the chief regained his
sense of duty as Income-tax Officer the moment he smelled sandalwood aroma of
Baba’s throne studded with precious stones and said mischievously, “Baba I will
meet you at some other time to check how great future I have. Right now I have
to record your statement about your great fortune, I mean your wealth, your
income in the present”

Baba realised that the chief was a hard nut. He was a bit
irritated.

Most of the questions Baba ducked by saying “My team of
Chartered Accountants would explain it, right now I am not aware of it”. It took
two hours to complete the recording of the statement. By that time Baba was a
fully grounded person. Baba realised “reality — not spirituality” would work in
this situation. Baba asked his assistant to arrange refreshments for the search
party. Baba and the chief moved from meditation centre to Baba’s closet.

“Look officer, I have a large number of disciples all over
the world. I have connections with political bigwigs, film stars,
industrialists, leading stockbrokers, etc. They adore me in their drawing rooms.
I don’t wish to waste my time in litigations. Let us now negotiate something
reasonable for you and other members of the search party”. Baba as an ordinary
human being exposed his mind to the officer.

The chief was very shrewd. He did not respond to Baba’s offer
instantly. He was thoughtful for a long time. His silence was killing Baba’s
patience. Eventually the chief broke his silence.

“Look Baba, I have strict instructions from the top, no let
up in the investigations. I am helpless.” said the chief. It was more a threat
than honest disclosure.

Thus the raid proceeded. At the end of the raid the chief and
Baba again went to Baba’s closet.

The chief put all the documents, notings and jottings
incriminating Baba and a couple of his close disciples, which the chief had
secreted from others during the course of search, on the table.

“Om shanti shanti” Baba chanted, staring nervously at the
chief.

“Gurudev, look at all these documents and papers, very damaging, they show your clandestine investments abroad, money laundering, violation of FEMA.”

” know, I know but you would agree that I have not earned any money from doing any “illegal business”, I mean black-marketing, smuggling, gambling or the like, all this money comes from my disciples teaching spirituality, guiding them how to live in peace and tranquility, giving them lessons of Yoga. Most of the donations are being accepted in the name of different trusts. All that money is being spent on philanthropic objects.” Baba made a futile attempt to earn sympathy.

“Gurudev, I am not concerned with your philan-thropic deeds, I know your trusts are doing great service to the society at large. But I can’t ignore all these papers and documents which implicate you individually. You are caught with your pants down.” For a while there was pin-drop silence in the room. Baba was flipping through the documents and papers.

“Why don’t you hand over those papers and documents having my reference as if you did not detect them at all ?” asked Baba staring at the chief.

“Ok, but not without price! What about other papers having names of your confidents, I mean second in command of the your Ashram ?” responded the chief.

“It’s for you to decide. Who am I to direct you?” the chief got pampered by Baba’s unexpected respect.

“Well, all right, I understand, so the deal is struck” said the chief.

Baba scribbled a figure on the paper and said, “Is this enough for you ?”

“It’s all right, but what about others?” queried the chief.

“Oh I just forgot them, how many are they?” asked Baba.

“Seven” said the chief making headcount on his fingers.

Again Baba scribbled a figure per member of the raid team on the paper and stared at the chief for his approval.

The chief hesitated, he asked  for more.

“Okay, I increase the amount as you desire. Can you give me guarantee you will not pocket the amount meant for them ?” asked Baba.

“I would call them right now if you suspect my honesty towards my colleagues” retorted the chief.

“Om Shanti Shanti Shanti, I am sorry, I am sorry” said Baba with a smile on his face.

Baba got a “clean” chit. His team of chartered accountants managed to convince the assessing officer that in Baba’s case everything was on “board”, nothing hidden or concealed. However Baba’s three disciples were implicated to the hilt for concealment of income and violations of different provisions of the Income-tax Act, FEMA, Customs, etc.

So Vikrambhai, my questions to you:

First how do you differentiate between Baba Ramjay and the chief ?

Second, what  works  in any given  situation ?

Third, both Baba Ramjay and the chief are dishonest persons. Who would you prefer as a friend ?

If you remain silent knowing the answers to my questions, I will chop your head with your sword.” Vetal roared.

Vikarm began  to answer,

“Both Baba Ramjay and the chief are social evils. But Baba is more dangerous than the chief. Forget his philanthropic deeds. The chief is an ordinary corrupt bureaucrat. Whereas Baba is an extraordinary corrupt member of the society, he pretends to be ‘spiritual’ for the society at large on the one hand and amasses huge wealth in the name of spirituality on the other hand. I think an avid spiritual person tends to abandon the mundane world in his pursuit to practise the principles of spirituality. Well, the chief has greed for money, whereas Baba has greed for money and ‘image’ both. Greed for image is more powerful than the greed for money.

Answer to your second question, in any given situation it’s not spirituality, ethics traditions or culture, but ‘survival instinct’ of an individual works. This survival instinct varies from individual to individual.

And lastly, I would prefer the chief as my friend instead of Baba Ramjay, Baba Ramjay is more selfish than the chief. He betrays his close confidents. On the contrary, the chief looks after the interest of his colleagues.”

“Vikrambhai, you broke the silence, I am vanishing” again VetaI’s laugh was echoing in the graveyard.

Part B : Some Recent Judgments

I. Supreme Court:

1. Classification:

Marine Logistic Services to Offshore Support Vessels from 1-6-2007 to 15-5-2008 whether could be held as services in relation to mining ?

Union of India v. Indian National Shipowners Association, 2011 (21) STR 3 (SC)

The short question involved in the case relates to the classification i.e., whether the services provided by members of the Association could be covered as services in relation to mining of mineral, oil or gas as provided in section 65(105)(zzzy) of the Finance Act, 1994 (the Act) introduced with effect from 1-6-2007. The Association contended that they were appropriately covered by the provisions of section 65(105)(zzzz) of the Act dealing with supply of tangible goods for hire. This service was introduced from 16-5-2008. The members of the Association provided vessels to ONGC on time-charter basis for the period in question viz. 1-6-2007 to 15-5-2008. The scope of the work in addition also included services such as carrying men and material between base and offshore installation, carrying out routine surveillance in offshore, carrying out rescue operations if and when required and carrying out any other field work which would be within the capability of the chartered vessels. Earlier the High Court held that the nature of work carried out by the members of the respondent could not be said to be the work in relation to mining activity. The Supreme Court also found that none of the activities mentioned in the agreement with ONGC by one of the members could be said to be a service rendered in relation to mining of mineral, oil or gas. Therefore, it affirmed the order of the High Court looking into facts in issues only and left the question of law decided by the High Court, open to be considered at length in appropriate case.

2. Commercial training or coaching services:

Whether computer training institutes were exempt between 10-9-2004 and 15-6-2005?

Commissioner of C.Ex. v. Sunwin Technosolution P. Ltd., 2011 (21) STR 97 (SC)

The Department challenged the judgment of the Jharkhand High Court holding that service tax was not payable by the computer training institutes for the impugned period.

Initially a Notification dated 20th June, 2003 was issued providing exemption to vocational training institutes including computer training institutes. However, the said Notification was effective till 30th June, 2004. Later a new Notification dated 10th September, 2004 was issued, which exempted vocational training institute and recreational training institute from the levy of service tax but did not specifically cover computer training institutes. This Notification, however, was amended by Notification dated 7th June, 2005 (effective from 16th June, 2005), which specifically excluded computer training institutes from the scope of the exemption. Therefore, according to the respondent since the amendment in Notification dated 10th September, 2004 was made effective from June 16, 2005, it implied that computer training institutes stood exempted for the impugned period of 2004-2005 and the liability would arise only from 16th June, 2005.

The Department contended that the Government was fully conscious of the fact that computer training institutes were not to get exemption and the same was clear because these were excluded from the Notification dated 10th September, 2004 and Notification dated 7th June, 2005 was more or less in the nature of clarification. The Apex Court confirmed that since computer training institutes were was out of the scope of exemption from 10-9-2004, the liability existed for the impugned period.

II. High Court:

3. CENVAT credit:

Does Cenvat credit of service tax on input services need to be reversed when inputs are removed?

Commissioner of C.Ex., Chandigarh v. Punjab Steels, 2011 (21) STR 5 (P & H)

The respondent, a manufacturer removed certain inputs from the factory without being used. The respondent did not reverse the CENVAT credit of service tax paid on input service (i.e., Goods Transport Service) so received in relation to purchase of inputs, as no provisions exist in the Rules in this regard. The Tribunal passed an order favouring the respondent. The Revenue filed an appeal raising a question of law whether CENVAT credit availed on input service at the time of receipt of inputs is required to be reversed at the time of clearance of inputs. The Revenue referred to Rule 3(5) of the CENVAT Credit Rules, 2004 (CCR) which specifies that Cenvat credit taken on inputs or capital goods needs to be reversed when the inputs are removed as such from the factory and contended that the respondent was required to reverse the CENVAT credit even of service tax on input services. Further, the Revenue also relied on Rule 5 of CCR which provides that CENVAT credit on inputs or input services is required to be reversed when the assessee is entitled to refund of tax paid on inputs or input services.

The respondent contended that there exists a material difference in language used in Rule 3 and Rule 5 of CCR. Rule 3 provides for reversal of credit on inputs or capital goods and Rule 5 refers to reversal of credit on inputs or input services. Further, inputs and input service are separately defined under CCR. The Revenue cannot direct respondents to reverse the credit on input service merely on analogy. The Court held that Rule 5 on which reliance was placed by the Revenue, stood on different footing. There being no specific provision for reversal of CENVAT credit on service tax paid on input service, such a proposal was not in accordance with the law. Hence, the appeal by the Department was dismissed holding that there did not exist substantial question of law and tax could not be levied merely by inference.

4. Penalty:

Can penalty u/s.76 of the Finance Act, 1994 be reduced below the minimum prescribed limit?

Commissioner of C.Ex. and Customs v. S. J. Mehta & Co., 2011 (21) STR (Guj.)

The respondents paid service tax along with interest after the due date of payment. They also filed a belated service tax return. Due to the lapses, penalty of Rs.88,800 u/s.76 of the Act was imposed. The respondents in the appeal got the penalty amount reduced to Rs.25,000 on invocation of section 80 of the Act. The Revenue’s appeal was rejected by the Tribunal.

Reliance was placed on a similar case reported at 2010 (19) STR 641 (Guj.) where the High Court quashed the order of the Tribunal. Apart from this, on a conjoint reading of section 76 and section 80 of the Act, the High Court had taken the view that there exists no discretion to the authority for levying a penalty below the minimum prescribed limit. Following this decision, the order of the Tribunal was set aside and the issue was divided to be looked at afresh by the Tribunal.

III. Tribunal :

5. Business Auxiliary Service:

Whether promotion of logo or branding service could be held as ‘Business Auxiliary Service’?

Jetlite (India) Ltd. v. Commr. of C.Ex., New Delhi 2011 (21) STR 119 (Tri.-Delhi)

In the year 2003 to 2007 (hereinafter called as the ‘relevant period’) Sahara Airlines used the logo and advertisement of its group company Sahara India Commercial Corporation Ltd. on its stationary and tickets. The Tax Department claimed that display of information of construction projects of Sahara India Commercial Corporation on boarding passes and baggage tags amounted to advertising and consequently a business auxiliary service and thus demanded a huge sum as liability to tax form Jetlite which had taken over Sahara Airlines.

The contentions of the appellant were as under:

  •     The appellant merely displayed logo of the group companies and were a part of the said group and were not rendering any service to Sahara Corporation. No other activity was carried out by them.

  •     The activities did not relate to any service as such rendered by Sahara Corporation to its customers and hence the appellant could not have been charged of having rendered service in the nature of business auxiliary services.

  •     Services of ‘brand promotion’ and ‘sale of space’ have been introduced in the said Act subsequent to the relevant period and hence the appellants could not be held to have rendered such service.

  •     Activity of the construction and sale of immovable property does not amount to service and promotion of immovable property is not covered within the definition of ‘business auxiliary service’.

  •     Not a single document on record suggested that the appellants had promoted or marketed any service of Sahara Corporation, i.e., the appellants did not carry out advertising activity for the projects of Sahara Corporation.

  •     The sale of immovable property by Sahara Corporation could not be deemed to be service for the relevant period as Sahara Corporation constructed building for themselves and not for others. Further, letter dated 10-9-2004 of the Ministry of Finance, clarified that the builder constructing for himself did not render any service as such.

The submissions of the Department were as under:

  •     Resolution by Sahara Corporation revealed that they had decided to use the services of the appellants for promoting their business and in consideration of which, the appellants were to receive certain amount per passenger.

  •     Merely because end product is transferred by way of sale, that will not wipe out the effect of services rendered by Sahara Corporation.

  •     Subject-matter of sale being that property constructed comprised various services to make the premises ready for sale.

  •     If the interpretation of the appellants was to be accepted, it would defeat the very provision of law.

Rejecting the demand of the Department, the Tribunal held as under:

  •     Mere printing of logo or the promotion of a brand without reference to any particular service provided by the client was not covered under BAS (Business Auxiliary Service).

  •     The service of brand promotion is brought in as a separate taxable service by the Finance Act, 2010 with effect from 1-7-2010 and before this date, brand promotion activity was not taxable under BAS.

  •     Construction of immovable property on its own behalf and its sale does not constitute a service and therefore, even if such activities were promoted, it did not amount to ‘promotion or marketing of service provided by the client’. Furthermore, Memorandum or Articles of Association is not sufficient to establish that there was service for promotion or marketing provided. Similarly, relying on registration certificate, one cannot conclude about the liability to service tax. The Department has to place on record factual matrix which would disclose basic information, which would enlighten as to the activity of the firm.

  •     The adjudication order went beyond the show-cause notice in confirming the demand by referring to various activities that Sahara Group carried on that were not alleged in the show-cause notice.

  •     The onus to establish classification and taxability was on the department was not discharged by the Department.

Hence, the appeal was allowed holding that the appellant’s service could not be taxed as Business Auxiliary Service.

6. CENVAT credit:

a) Whether input service used for outward transportation is eligible for benefit as CENVAT credit?

Somaiya Organo Chemicals v. Commr. of C.Ex. & Cus., Aurangabad 2011 (21) STR 114 (Tri.-Mumbai)

The appellant paid service tax on the insurance policy in respect of goods transported from the factory to the port of export.

In case of export of goods, it has been held that input service includes services rendered for outward transportation upto place of removal of goods and service tax paid to facilitate goods to reach the place of removal has to be eligible for benefit of CENVAT credit. Insurance service was taken by the appellant for transportation of goods from the factory to the port of export. Thus, input service was used for the business activity undertaken up to the place of removal of goods. The Tribunal held that the appellant was entitled to take input service credit.

b) Is Cenvat credit available on air-ticket booking service for paying excise duty on manufacture of final products ?

Somaiya Organo Chemicals v. Commr. of C.Ex. & Cus., Aurangabad 2011 (21) STR 114 (Tri.-Mumbai)

The respondent was engaged in the activity of manufacture. Various air journeys were undertaken by employees for business purpose.

Revenue in appeal claimed that air-ticket booking service was not an input service as there was no nexus between air-ticket booking service and manufacturing activity. The respondent con-tended that ‘the object of CENVAT scheme is to allow credit on inputs used in or in relation to manufacture of final product and to allow credit on input services used in or in relation to manufacture of final product as well as in relation to business of manufacture’. Business activity cannot be restricted to mere manufacturing activity and it covers all activities that are related to business. The term ‘in relation to business’ cannot be given a restricted meaning and expenses incurred as a result of commercial expediency are covered by the said term. The appeal was allowed.

7. Commercial or Industrial Construction service:

Whether laying of pipeline covered as ‘Commercial or Industrial Construction service ?

Dinesh Chandra Agarwal Infracon P. Ltd. v. Commissioner of Central Excise, Ahmedabad 2011 (21) STR 41 (Tri.-Ahmd.)

The appellant provided service of laying of long-distance pipelines for the transfer of water in the State of Gujarat under a contract with the Gujarat State’s Sewerage Board, an independent body constituted under an Act of the State Government.

The Tribunal observed that service tax would be payable under the service head, ‘Commercial or Industrial Construction Service’ only if the service was provided to any person by a commercial concern and in relation to commercial or industrial construction service.

The appellant did satisfy the first condition mentioned above; however the second condition was not very certain. ‘Commercial or Industrial Construction Service’ was chargeable to service tax if it was used for the furtherance of business or commerce. As the canal built by the Government was not falling under commercial activity, service tax was held to be not chargeable.

Water purchased by the Board was distributed to rural and urban areas for the purpose of irrigation and drinking at subsidised rates and the operating cost was also not recovered by them. To set up an establishment for water supply was a part of the duties and functions of the State to provide its citizens with a better living. Accordingly, the services provided were held to be not covered as commercial or industrial construction service and therefore the appeal was allowed.

8. Penalty:

Should penalty be leviable in case service tax is paid along with interest after issuance of show-cause notice?

Rockwool Insulation v. CCE, Rajkot 2011 (21) STR 62 (Tri.-Ahmd.)

The appellant engaged in providing construction services paid service tax after the due date along with interest. However, part payment of service tax was made by the appellant after the issuance of show-cause notice (SCN). Penalty was levied on the appellant for non-payment of service tax along with interest.

Further, the appellant also collected service tax from their customers and admitted that the service tax was not paid because of financial difficulty. Thus, having regard to collection of service tax and non -payment, penalty was considered warranted and the case was remanded for re-determination of penalty imposable.

9. Principles of natural justice:

Show-cause notice issued by the revisionary authority violating the principles of natural justice.

Klockner Desma Machinery Pvt Ltd v. CST, Ahmedabad 2011 (21) STR 37 (Tri.-Ahmd.)

In the present case the demand of service tax raised against the appellant was initially dropped by the Assistant Commissioner and then taken for review by the Commissioner. Show-cause notice was issued by the Commissioner on 13-1-2010 requiring the appellant to file reply within seven days of receipt of notice and appear for personal hearing on 20th, 21st or 22nd January. The appellant applied for an extension of time to reply on 18-1-2010. There was no reference in the impugned order to said reply of the assessee. It was held that a period of seven days granted to the assessee to file a reply and personal hearing on three consecutive days in accordance with the principles of natural justice. The matter was remanded to the Adjudicating Authority for fresh decision observing principles of natural justice.

10. Rebate : Export of services:

Whether non-filing of prior declaration leads to rejection of rebate claim?

Manubhai & Co. v. CST, Ahmedabad 2011 (21) STR 65 (Tri.-Ahmd.)

The appellant claimed refund under Notification No. 12/2005-ST being service tax paid on input services used in services exported by them. The said Notification provides for filing of declaration describing the quantity, value, rate of duty, amount of tax payable on inputs, value and amount of service tax and cess payable on input services prior to the date of export. The Authority was of the opinion that the assessee could not claim refund on the ground that the appellant had not filed of non-filing declaration before export. It was further held that the notification is divided into two parts. The first part gives conditions to be fulfilled for granting of refund and the second part gives the procedures to be followed and that the requirement of a declaration in the Notification cannot be treated as a mere procedural requirement.

The appellant argued that substantive benefit can-not be denied on the ground of procedural lapses. The Tribunal held that failure to file declaration is not sufficient to hold that the assessee did not pay service tax on input services. Non-observance of a procedural condition was of a technical nature and cannot be used to deny the substantive concession.

11. Refund:

Whether refund is allowable when service tax is paid in case when the assessee fails to take benefit of small scale exemption?

Cancio E.P. Mascarenhas v. CCEx., Goa 2011 (21) STR 17 (Tri.-Mumbai)

Notification 6/2005 provided for threshold exemption of service tax on taxable services of the value not exceeding Rs.8 lakh to a service provider in the relevant year. The appellant did not know about this benefit and paid service tax on commission received from his client. On becoming aware, the appellant filed a refund claim of service tax paid by them. However, it was rejected on the ground that the appellant had not exercised the option for claiming the benefit of threshold exemption Notification. Departmental authorities submitted that the appellant paid tax by fulfilling the condition 2(1) of the said Notification which says that a service provider can opt to pay service tax and not avail the benefit of exemption, but the option once exercised shall not be withdrawn during the remaining part of the year. In this regard the assessee contended that the benefit of exemption Notification was available in any financial year subject to fulfilment of conditions specified in the Notification. The assessee could not take the decision in advance as he got registered in November 2007 and could not opt for exemption during the financial year. Hence, condition of 2(1) of the said Notification was not applicable to the appellant. Apart from this, the appellant also did not recover service tax from clients and paid service tax as an honest taxpayer. The appeal was allowed and the refund was allowed.

Society News

Recent Important Judgements in Service Tax
Mr. V Sridharan, Advocate, and Founder Partner of Lakhsmikumaran and Sridharan addressed the members on the subject of ‘Recent Important Judgements in Service Tax’ on 19th January 2011 at the IMC. The speaker in his interactive style covered various issues with regard to the constitutionality of various provisions enacted under the service tax law. The highlight of the lecture was the support the speaker drew from various precedents under Indian and foreign cases to explain the fundamentals regarding the constitutionality of levy of service tax.
At the outset, the speaker dissected in detail the provisions relating to levy of service tax on under construction flats and analysed the niceties of the decision of the Punjab & Haryana High Court upholding the constitutional validity of the same. Thereafter, he analysed the provisions regarding the retrospective validation of the amendment regarding the renting of commercial properties. He also dealt with the complex issue of overlapping jurisdictions of taxation in case of financial leases.

Before the end of the seminar, participants also got a chance to get their queries answered from the learned speaker. His enthusiasm coupled with his deep knowledge of the subject was well appreciated by the participants.

Government’s Initiatives on Electronic Credit for Income-tax Payments

Meeting was addressed by two senior executives from NSDL, along with Ms. Delnaz Mistry, Manager NSDL on Government’s Initiatives on Electronic Credit for Income Tax payments on 31st January 2011. They touched upon subjects of TDS, Quarterly statements, issues relating to mis-mactch, and allotments of Permanent Account Number. They also dealt with procedure for obtaining PAN by non residents.

The Power Point presentation covered various practical issues dealing with TIN, E-payments, Challan Status Enquiry, key points for preparation and submission of E-TDS statements, Quarterly Statement Status, Refund Status, Registration for viewing of Form 26AS and benefits of Form 26 AS.

Speaker brought out the common errors/ inconsistencies and gave practical suggestions to overcome the same. She also informed of new initiatives planned that are likely to be introduced in near future. The participants raised their queries and pointed out difficulties faced by them was and shared their experience. The meeting was highly interactive. NSDL officials promised all the help to members to sort out their difficulties.

Nani Palkhiwala Memorial Lecture

The Eighth Nani A. Palkhivala Memorial Lecture was held on 7th February 2011 at the Tata Theatre, NCPA, Nariman Point, Mumbai 400 021 on ‘The Emerging Scenario in Education’ and was delivered by Mr. Kapil Sibal, Minister for Human Resource Development, Science & Technology & Earth Sciences, Communications & Information Technology, Govt. of India.

In the beginning the Sixth Nani A Palkhivala Civil Liberties Award was presented to Chaman Lal for the protection and preservation of civil liberties. The Award was presented by Mrs. Justice Sujata Manohar (Retd.).

Mr. Kapil Sibal presented the Vision 2020 of the Government of India in the field of education. He informed that the Government was committed to improve the education scenario in India. Enactment of the Right to Education Act was the first step in that direction. He emphasised the need for improving the ratio of school and college going children. By the end of the next decade India would need about 40,000 more colleges and about 1000 new universities. He also informed about the plan to connect colleges and universities through optical fiber which would enable students to learn online from any place and from any College/University.

He reiterated his Government commitment to reduce stress and tension associated with the present education system and assured steps to introduce comprehensive and continuous evaluation system.

He expressed hope and trust in Indian youth and promised them better tomorrow.

Standard Chartered Mumbai Marathon, 2011

Standard Chartered Mumbai Marathon, 2011, was held on 16th January, 2011. Bombay Chartered Accountants’ Society supported the cause of education by registering as an NGO for the Marathon. Over 50 members participated from the Society and ran for the cause. The enthusiasm of the members was visible as they all supported the cause in good number irrespective of their age. Members not only supported for the DREAM RUN which was for 6 Km but also the HALF MARATHON of 21 Km & FULL MARATHON of 42Km.
Accounting & Auditing Committee

February 2011 was celebrated as the Internal Audit Month at BCAS. The month started with the launch of the seventh six days Internal Audit Studies Foundation Course at Hotel Parle International from 7th February 7, 2011 to 12th February, 2011.

The course received an overwhelming response with a full house with more than 50 participants from various locations including Delhi, Chennai, Pune, Nasik, Ahmedabad, Vadodara and Rajkot.

The course commenced with the Chairman Mr Himanshu Kishnadwala, and Mr Mayur Nayak giving their opening remarks. The course was inaugurated by Smita Gune, a pioneer in the field of Internal Audit, with over 23 years of experience behind her. She spoke about the various opportunities and challenges that face the Internal Audit Profession and also shared with the participants various ways in which such challenges could be addressed. She also lucidly shared vignettes from her exciting journey.

Over the six days, participants were treated to a well-designed course which included:

  •     Internal Audit Overview.
  •     Positioning of Internal Audit in the Corporate framework.
  •     Evolution of Internal Audit, with specific reference to the Indian environment, regulatory framework facilitating Internal Audit.
  •     Preface to Standards on Internal Audit and relevant SIAs.
  •     Internal Audit Objective – Internal Controls,
  • Compliances, Resource optimisation, Ethics and Governance.
  •     Internal Audit Process – planning (audit charter, audit plan, scope determination, scope review), resource mobilisation & pre-preparation.
  •     Internal Controls – the heart of Internal Audit, with Case studies.
  •     Basics of Risk Management and Risk Assessment.
  •     Situation analysis – Probing skills.
  •     Internal Audit – How to make an impact.
  •     Internal Audit Process – execution: field work and working papers.
  •     Report Writing.
  •     Internal Audit – Case Studies.
  •     Internal Audit in IT environment – orientation (i.e., specific focus on the need to understand, appreciate and utilise the IT environment of the auditee for effective Internal Audit), practical examples in Tally, ERP, web-based system.
  •     Internal Audit – Bag it, Sell it, Present it.
  •     Use of CAATS (for Internal Audit evidence collection).
  •     Building an Internal Audit Team.
  •     Presentation skills and
  •     Data Mining & Analytics for Internal Audit.

The faculty, drawn from both the industry and profession, included Ms. Nandita Parekh, Mr. Bhargav Vatsaraj, Mr. Himanshu Vasa, Mr. Deepjee Singhal, Mr. Jairam Rajshekhar, Mr. Nikunj Shah, Mr. Shailin Desai, Mr. Ravindra Rao, Mr. Kunal Pande, Mr. Atul Shah and Ms. Preeti Cherian.

As part of the concluding session, the participants expressed their deep sense of gratitude to the Society for having conducted such a course which will enable them to provide quality service to their clients. The course concluded with remarks by Past President Mrs Narayan Varma who also distributed certificates to all the participants.

Human Resources Committee:

The Human Resources Committee of BCAS under the auspices of Amita Memorial Trust organised a workshop for its members and students on ‘Effective Communication and Public Speaking’. This workshop was held over three days in February 2011 at the Society’s premises.
Veteran HR trainers Mr. Murli Mehta & Mr. Vivek Patki were the faculty and the workshop had 32 participants. Initially, the basic process and the fundamentals of effective communication were dealt with. Participants were educated about important tools and practical tips on how to succeed in public speaking were imparted. The workshop was specifically designed for members and students keeping in mind some of the most difficult communication issues students and members face while interacting with other people. The motivators also conducted useful exercises on confidence building when speaking in public, ability to overcome anxiety and nervousness when preparing for public and techniques to enhance personal public speaking styles were explained.

The workshop provided personal attention to each participant with constructive and effective feedback along with performance appraisal. This was an excellent opportunity to practice and assess the strengths and ability to use and control ones voice more effectively. The participants were made aware of use of non-verbal signals and physical appearance while speaking.

All the participants were happy with the workshop and the feedback received from them was very encouraging.

After two days of practice the participants were given assignment to prepare and make a five minutes speech on the concluding day. The topics were contemporary and marks were allotted for all the important aspects like opening of a speech, body language, eye contact, gestures, content, overall impact, timing and conclusion. Three judges were called to judge and give their feedback. Six useful management books were distributed to the first three winners and three consolation winners. President Mayur Nayak, Vice President Pradip Thanawala, Past Presidents Pradeep Shah and Rajesh Muni and Managing Committee member Manish Sampat were present at the inauguration and concluding of this workshop. The judges who graced the occasion were Mr. Nitin Shingala, Mr. Mukesh Trivedi & Mr. Kinjal Shah.

From The President

From The President

Dear Valued Readers,

“Civil Disobedience” – do these words ring bell? Yes, it was
an integral part of India’s freedom struggle. A totally non-violent way of
protesting against British Rule in India!

Something similar happened in Egypt last month. People in
thousands protested nonviolently against thirty years of autocratic rule of
President Hosni Mubarak at Cairo’s Tahrir Square and other centres for weeks and
in less than one month, Mubarak stepped down yielding to the pressure of the
people for democracy. Indeed, the media played its role very successfully in a
short span of time. Youngsters, with the help of social networking media, like
Facebook, Twitter, YouTube etc., managed to spread the message like wild fire.
They were able to take the army on their side and that was a significant
achievement. The winds of freedom then spread across various other Arab
countries in the Middle East encompassing Bahrain, Tunisia, Libya, Yemen, etc.
All these countries are still being ruled by dictators/kings for decades.
Evidently, the underlying spirit in these uprisings is desire for
freedom/democracy. It is said that man is born free. Freedom is the latent
desire of every human being and is recognised as a fundamental right under the
Indian Constitution, amongst numerous others in the world.

One of champions of human freedom in modern times in India
was the legal luminary late Mr. Nani A. Palkhivala who successfully fought the
case of Kesavananda Bharti vs. State of Kerala before the Supreme Court and made
history. One of the Judges commented: “Never in the history of the Court has
there been a performance like that. With his passionate plea for human freedom
and irrefutable logic, he convinced the Court that the earlier Kesavananda
Bharti case judgment should not be reversed.” Rajaji described him as, “God’s
gift to India”. In his fond memory, the Nani A. Palkhivala Memorial Trust, gives
a “Civil Liberties Award” every year. The award was presented this year to
Padmashri Chaman Lal – a brilliant, honest and upright former IPS officer for
protection and preservation of civil liberties in various capacities. He was
instrumental in combating terrorism in the Punjab and ensuring free and fair
elections post operation Blue Star, worked with a difference as the Director
General of Police in Nagaland for which he was given the “Friend of North East”
Award by the Prime Minister, Dr. Manmohan Singh, in 2004. The moot point here is
that
we still have people in India who can and are upholding the values of freedom
and civil liberties of high order.

One of the surest ways to make humans “free” is by imparting
value based education. “Education is the key to unlock the golden door of
freedom” said George Washington Carver. Indeed, education opens up one’s mind as
one is able to read, contemplate and assimilate frozen thoughts and wisdom from
tomes. Our great leaders of freedom struggle are standing monumental examples.
In his annual address to the US Congress at Capitol Hill, President Obama noted
that India would emerge as a Super power in the decades to come, as it believes
in investing vast resources in its educational endeavour, as knowledge is power.
In order to empower the destitute and poor children of our society and bring
about a difference in their lives, the BCAS Foundation in association with
Public Concern for Governing Trust (PCGT) and the Dharma Bharathi Mission, has
decided to launch a novel project called “Teach English”. Under this mission
children from select Municipal and other schools would be taught conversational
English for three months, with one class every week for a duration of three
hours. Volunteers would be trained to teach English. The project has received
overwhelming response from members and their friends and/or families. If you
would like to contribute your services to this noble cause and to redeem your
debt to the society, you are indeed welcome to join the project. Please write to
the undersigned for any information thereon,
at president@bcasonline.org.

UNION BUDGET – 2011-12

It is heartening to note that in the Union Budget 2011-12,
the Government have laid emphasis on the need for universal access to secondary
education as well as increasing the percentage of students acquiring higher
education and skilled training. The allocation for this purpose is Rs. 52,057
crores, which is 24% higher than the current year – a great welcome move indeed.
The implementation of the “Sarva Shiksha Abhiyan”, the Centrally Sponsored
Scheme “Vocationalisation of Secondary Education” to improve the employability
of our youth and pre-matric scholarship scheme for Scheduled Castes and
Scheduled Tribes, are some of the other highly commendable initiatives taken in
the field of education. But what is going to change the scenario is the linking
of 1500 Institutes of Higher Learning and Research in the Country through an
optical fibre backbone to be in place by 31st March 2012 under the National
Knowledge Network (NKN). This would facilitate geographical spread of education
and knowledge seamlessly. It would create the National Knowledge Sharing
Platform and if implemented rightly, may well become a powerful knowledge bank
of unusual dimensions.

Whereas food inflation at 20% and fiscal deficit at 5.1% of
GDP are matters of grave concern, the Economic Survey unveils some reassuring
statistics. The growth of Indian economy at 8.6 % proves that Indian Economy is
on the growth track. The Union Budget 2011-12, envisages several legislations
and numerous reforms are expected in the Financial Sector. The scope of Service
Tax and Excise has been widened. The growing awareness about the environment and
the launch of a ten-year “Green India Mission” is a welcome move. As expected,
not many changes are made in the area of Direct Taxes, in view of the Direct
Taxes Code on the anvil. Concrete measures have been proposed in the Finance
Bill to unearth black money of Indians abroad through introduction of provisions
compelling assesses to provide details of transactions with persons located in
any country or jurisdiction which does not effectively exchange information with
India.

Cricket fever is on along with examination fever. I can
imagine how difficult it is for students to balance between the two. I wonder
how Government could allow playing cricket during examination season, since
cricket has now become more of an entertainment than a sport, which it ought
tobe!

All the same, I wish all students best of luck in their
endeavour.

Regards,

Mayur Nayak

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From The President

From The President

Dear BCAJ Lovers,

Every month, I ponder over what to write about in the
President’s Page. I am conscious of the fact that my illustrious predecessors
have been writing on academic matters and on technical subjects of interest to
members. On the other hand, I have deliberately stayed away from such topics.
The reason for this is that I believe I have got an excellent opportunity to
share my thoughts on other important topics with thousands of professionals in
and outside the country and by writing on topics or issues other than tax,
accounting, auditing etc., I am bringing to the fore issues of importance on
which very little discussion otherwise takes place amongst our profession. The
response that I have so far received from a large number of members has
encouraged me to continue this trend. I sincerely thank all the readers who have
been writing to me and sharing their views.

This month, I happened to attend a very impressive event in
Mumbai. The Business India Award function for the Businessman of the Year 2009
was held on 22nd February. Mr. Aditya Puri, the Managing Director of HDFC Bank,
was the recipient of this prestigious award this time. I learnt a few very
interesting facts about this man, who heads one of the most successful banks of
our country. He does not wear a watch, he does not carry a mobile phone, and
lastly, he leaves office every evening by 5.30. This is an amazing revelation
for all of us. If a poll is taken, I doubt if any CA would be leaving his office
by 5.30 every evening. Whether we are in practice or in industry, we are all
bogged down by our work and consider it mandatory to sit late hours at work. And
here is a man who heads the second largest private sector bank in India and this
gentleman can manage to go home at decent hours every day. Can there be a better
example of time management and also of delegation? Can there be a better person
to emulate than Mr. Puri? The BCAS has been conducting a course on self
development, which includes a session on time management. I invite our readers
to take these matters more seriously.

Another event that I attended was a fund raiser by the Terry
Fox Foundation. This organization, aided by many others in India and across the
world, has raised millions of dollars of funds for cancer research. Terry Fox,
as many of you would know, was a keen sportsman who, at the age of 18, was
diagnosed with bone cancer and had to have one of his legs amputated. Despite
this, he decided to run across Canada to raise funds for other cancer patients.
He ran more than 5,300 kms before he was forced to stop running due to further
spread of cancer in his body. He died at the age of 22. This spirit of being
alive while dying teaches all of us to give more than take. Even in his death,
Terry left a ray of hope for so many other cancer patients like him. He proved
that nothing is impossible if there is a will to achieve the seemingly
impossible. The BCAS Foundation, which is a charitable trust floated by the BCAS
and its leaders, has been conceived to do noble work. This year, we propose to
raise funds for providing educational loans/scholarships to financially weak CA
students. This proposal is still under finalization. I urge readers to loosen
their purse strings and to contribute generously to this cause. Let us spread
education far and wide and particularly amongst the financially weak. Recently,
we have funded the CA course fees for a young and enthusiastic son of a
vegetable vendor. There will be many such deserving cases. Do you have it in you
to come out and do something concrete for such people?

A member of BCAS happened to forward me an interesting
e-mail. It contained an excerpt from an article written by a professor of IIM
Bangalore. It spoke of how the fundamentals of business environment are changing
completely. There are several examples of how completely unheard of business
ideas/products have, virtually overnight, become competitors of well known and
well entrenched products. Such new ideas/products have displaced ideas/products
which were once considered irreplaceable. Thus, for example, it is reported that
the company that sells the largest number of cameras in India is not Sony or
Canon or Kodak but Nokia (through its mobile phones). Similarly, the biggest
name in the music industry today is not HMV or Sa-Re-Ga-Ma but Airtel, which
sells caller tunes that play for 30 seconds. An even more vivid example is the
one about who was the toughest competitor to British Airways in India in 2008?
Singapore airlines? Better still, Indian Airlines? Maybe, but there are better
answers. There are competitors that can hurt all these airlines and others not
mentioned. The answer is videoconferencing and telepresence services of HP and
Cisco. Travel dropped due to recession and people started communicating over
internet and other electronic media – thereby avoiding travel altogether. All
these examples, the author said, lead one to a gem of a question – “who is my
competitor?” Chartered Accountants also need to pay heed to this question. Who
could be a competitor to a CA? Is it an MBA? Is it a CFA? Or is it someone else?
Who knows, the answer could be something as out of the box as “the Internet”.
After all, don’t we have so many web sites offering tax return filing services
at rates which we CAs would not even pay our office boys? So, is it possible
that the internet will replace a CA one day? Possible. At least for compliance
related services. The point that I am trying to drive home is that nobody can
afford to remain complacent and bask in past glory. One can never anticipate the
direction from where competition can come and of what type it would be. At such
times, one needs to have a broad vision. I am reminded of a very illuminating
statement attributed to Swami Vivekananda, who was asked by a blind person, “Can
there be anything worse than losing our sight?” The Swami promptly replied,
“Yes, losing your Vision.” If any of you are interested in reading the mail
referred to above, do write to me and I will forward it to you.

The Budget has been presented to the country by the Finance
Minister and all of you would have already had an overdose of material written
on and about the budgetary provisions. I, therefore, do not intend to add
anything to what the Editor of BCAJ has written.

Encouraged (nay, virtually prodded) by some of the young and
enthusiastic members of the BCAS, I have plunged headlong into social and
professional networking web sites. We now have a presence on some of the popular
networking sites such as Twitter, Linkedin and Facebook. I have also started a
blog on wordpress. I invite readers to join us in the cyber world. I find it
much easier to keep in touch with my contacts there than personally. Also, I
have heard that soon e-mails may go out of fashion! That being the case, I am
preparing myself for the changed environment well in advance! Join me if you
desire.

Sincerely yours,

Ameet Patel

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From The President

From The President

Dear Professional Colleagues,

India has hit the headlines once again. Slumdog Millionaire
has won 8 Oscars including the one for The Best Film, and A. R. Rahman, the
heartthrob of millions for his composition and background score. One really
feels proud to be an Indian.

There have been some comments that the film is really a
British film and only the performers are Indians. I believe that the Awards are
for the excellence in performance and there is no doubt that many of the
performers are Indians. Any film is a team effort and India therefore deserves
the credit and the accolades. I felt really happy for those six children who are
a part of this film. One only hopes that this glory, which the film and its
artists have achieved, results in improvement in the quality of life of all
those kids whose story the film depicts. While today’s newspapers are expectedly
filled with coverage of the Oscar Awards, a story in a reputed daily which was
carried alongside these reports caught the eye. The report stated that even
though public expenditure on health had increased, the percentage of
undernourished children both in the rural and urban areas had gone up — a clear
indication of the fact that the expenditure is not achieving expected results.

Without detracting from the fabulous achievement of the
entire team of Slumdog Millionaire, I feel that the reaction from the government
could have been different. As I write this communication, three States have
already declared this film tax free. One really needs to examine whether these
exemptions achieve the intended results. If the desire is to ensure that more
people watch the film, it would be better to collect the tax and earmark it for
providing facilities to those who cannot afford the luxuries of visiting a movie
theatre today. Passing on the benefit of a tax exemption to the urban elite who
visit the multiplexes, really makes no sense.

The reaction of the public fortifies one feeling that we are
a nation that enjoys celebrations and loves celebrities. We do not tolerate
losers. The moment our cricket team wins a tournament, the cricketers are
worshipped, the minute they lose they are trashed, cursed, their homes attacked.
To the media everything is an event to be milked to the maximum.

The world believes that India is a country with immense
talent. Occasions such as the Oscars for the Slumdog team prove this confidence
is not misplaced. The challenge is to ensure that the achievements, successes,
victories, do not remain merely events, but encourage actual action on the
ground. An A. R. Rahman, Resul Pookutty, Bindra, Sachin, Sania will definitely
inspire the talented youth of this country. It is our duty, and responsibility
of the powers that be, to provide them with the opportunity.

A week before the mega Oscar event, Pranab Mukherjee, the
Finance Minister, presented the interim budget, the last one of this government.
Considering the prevailing economic situation, many were expecting the Finance
Minister to provide substantial tax cuts and other incentives. It would have
been politically expedient, but Mr. Mukherjee refrained from going overboard. He
has provided some marginal tax cuts in excise and service tax, but they were
necessary, and cannot be treated as an election bonanza. He has left the task of
providing a more comprehensive economic stimulus to the next government. By the
time this communication reaches you, election dates may have been announced, and
the nation will prepare itself for another mega event.

In the coming elections let us all vote, and encourage our
friends and relatives to vote. Undoubtedly, our choice may be limited, but we
must exercise our franchise and send the best from the available to parliament
as our representatives. One of the duties of the government is to legislate, but
our politicians have no time for this. At the end of this Lok Sabha, 39 bills
which had been introduced will lapse, while 29 others which had been introduced
in the Rajya Sabha will await action by the next government. Compare this with
the seven bills lapsed at the culmination of the first Lok Sabha. I am putting
down all these thoughts not with a view to criticise but when I witnessed the
Oscar ceremony, I felt that our country has tremendous latent talent. All we
need is better governance.

The entire world is on the threshold of an economic slowdown
or possibly a recession. All economists feel that India is one of the few
countries which will register positive economic growth, while all other major
economies will decline. The world believes that India will be the first off the
block, when the turnaround takes place. We must start believing in ourselves. We
must not let this opportunity pass. We have the potential; if we utilise it, we
will be well placed to lead when the world order changes in the coming decades.
Jai Ho India !

Anil Sathe

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ICAI And Its Members

ICAI and its Members

1. Accounting treatment of advance to subsidiary pending
finalisation of modalities of issue of the shares :


A public limited company (P.C. Ltd.) which is a wholly-owned
subsidiary of a listed government company, is in the business of exploration and
production of oil and gas and other hydrocarbon-related activities outside
India. P.C. Ltd. has acquired 100% share capital of a Cyprus-based company
(ABC). During the same year, ABC acquired the entire issued share capital of a
UK-based company (XYZ). The funds for the acquisition of XYZ amounting to USD
1,922 million were provided by P.C. Ltd. to ABC with the intention to treat it
as share application money without entering into any formal agreement at the
time of remittances. Further, P.C. Ltd. has advanced USD 53 million to ABC for
XYZ’s business requirements.

Subsequently, P.C. Ltd. entered into a ‘Shareholders’
Investment Agreement’ with ABC. As per the terms of shareholders’ Investment
Agreement, ABC will issue preference/equity shares at a mutuality agreed premium
rate. The agreement makes clear the intention to convert the advance of USD
1,922 million given for acquisition of XYZ into preference/equity shares.
However, no concrete modalities regarding vital issues of the shares like,
nature of shares (i.e., equity/preference shares), number of shares, face
value and premium, etc., are firmed up till the balance-sheet date. No written
agreement is in place regarding the settlement of advance of USD 53 million
given for meeting XYZ’s business requirements. However, P.C. Ltd. intends to
convert this advance also into equity/preference shares and the advance is not
likely to be refunded in near future. As the shares are yet to be issued, the
amount of USD 1,975 paid by P.C. Ltd. to ABC has been shown as ‘Advance to ABC’
in Schedule, ‘Loans and Advances’ in the stand-alone financial statements.

As P.C. Ltd. intends to convert the advance of USD 1,975
(1,922 + 53) into equity/preference shares, the advance given to ABC, has been
considered as an extension to the net investment of P.C. Ltd. in ABC, which is a
non-integral foreign operation. Therefore, the net investment in ABC has been
revalued and accounted for in accordance with the requirements of Paragraph 15
and 16 of Accounting Standard (AS) 11. P.C. Ltd. has revalued the advance of USD
1,975 million at the foreign exchange rate at the year-end rate. The credit for
the same amount has been given to ‘Foreign Exchange Translation Reserve’.

However, the C&AG while carrying out their review
u/s.619(3)(b) objected to the above accounting treatment of showing the amount
of USD 1,922 million paid to ABC towards financing acquisition cost of XYZ as
‘Advance’, as in their view, the amount should be shown as ‘Investment (Share
Application Money pending allotment)’ and, therefore should not be revalued in
accordance with Accounting Standard (AS) 13. Further, the C&AG questioned the
credit of the amount arising on revaluation of USD 53 million to ‘Foreign
Exchange Translation Reserve’ instead of taking it to the profit and loss
account, as in their view, the foreign exchange revaluation gain is of revenue
nature.

Query :

In view of the above stated facts, P.C. Ltd. sought the
opinion of the Expert Advisory Committee (EAC) on the appropriate accounting
treatment of advances so paid and treatment of foreign exchange gain/loss
arising on revaluation thereof.

EAC opinion :

EAC has taken the view that accounting treatment in the case
of P.C. Ltd. would depend upon whether the funds advanced to ABC for acquisition
of shares in XYZ and for meeting XYZ’s business requirements can be regarded as
a monetary item or as a non-monetary item. The Committee noted the Accounting
Standard (AS) 11 and came to the conclusion that shareholder’s investment
agreement with ABC only contains the intention to convert the said advance into
preference/equity shares, and no concrete modalities regarding nature of shares
(i.e., equity/preference shares), number of shares, face value, premium,
etc., have been decided till the balance-sheet date. The EAC noted that in
respect of an advance of USD 53 million P.C. Ltd. intends to convert this
advance also into equity/preference shares. However, no agreement in respect
thereof has been entered into or any modality for such conversion has been
decided till the balance-sheet date. Accordingly, the EAC is of the view that
both the advances are of the nature of monetary items. Further, the EAC is also
of the view that accounting treatment followed by the company for the treatment
of the advance of USD 1,975, revaluation of advances and credit of foreign
exchange revaluation gain to Foreign Exchange Translation Reserve is
appropriate.

(Refer pages 1248 to 1252 of C.A. Journal of February, 2011)

2. Our new President and Vice-President :


Shri G. Ramaswamy from Coimbatore has been elected as
President of ICAI on 12th February. Shri Jaydeep Shah from Nagpur has been
elected as Vice-President of ICAI on 12th February. Our greetings and best
wishes to both of them. We wish them a successful term of office in 2011-12.

3. New Chairman of NACAS :


Shri M. M. Chitale, Mumbai, former President of ICAI, has
been appointed as Chairman of National Advisory Committee on Accounting
Standards in place of Shri Y. H. Malegam w.e.f. 31-1-2011 for one year. This
committee is also reconstituted. We wish to convey our greetings and best wishes
to Shri Chitale and wish him and his colleagues a successful term of office in
2011-12.

4. New Minister for Corporate Affairs :


Shri Murli Deora from Mumbai has taken charge as the new
Minister of Corporate Affairs on 20-1-2011. He is known to be a seasonal
industrialist, a proactive social worker and a soft but determined leader. His
Ministry oversees the affairs of ICAI. Our greetings and best wishes to Shri
Deora. We wish him a successful term of office. (Page 1181)

5. MoU with Canada C.A. Institute :


ICAI has signed a MoU with Canadian Institute of Chartered
Accountants for reciprocal membership arrangements. This MoU will facilitate
mobility of members across the borders and further strengthen the ties between
India and Canada. The MoU will establish closer working linkages as well as
provide recognition for members of the two institutes in the respective
countries. (Press Note of ICAI dated 7-2-2011)

6. ICAI News :


(Note : Page Nos. given below are from C.A. Journal of
February, 2011)

(i) Recognition for PhD Courses for CAs :


Institute of Management, Kozhikode (Kerala) and National Law
School of India, Bangalore, have extended a facility to our members to pursue
Fellow Programme i.e., PhD programme. (Page 1149)

(ii) Arrangement with Microsoft :


Special pricing (at very low rates) has been worked out with Microsoft for ICAI members and students. This is a part of the Academic Licensing for providing the latest edition of MS Windows and MS Office. (Page 1149)

    iii) Significant achievements and major decisions by Council of ICAI in 2010:
    b) Details of some significant achievements by ICAI since February, 2010, are given on pages 1152 to 1168.

    a) Details of major Council decisions since February, 2010, are given on pages 1170 to 1180.

    iv) ICAI International Conference

International Conference on Role of Accountancy Profession in Sustained Economic Growth was organised by ICAI from 4th to 6th January, 2011, New Delhi. Highlights of the conference proceedings are given on pages 1186 to 1196.

    v) Tax issues from conveyance of IFRS with accounting standards:

ICAI has drafted 35 accounting standards after the convergence of IFRS and sent it to the Government for Notification under the Companies Act. (Refer Page 1152). A study group comprising some Council Members and representatives of CBDT was constituted for study of tax issues arising out of convergence of existing accounting standards with IFRC. This Group has prepared a position paper identifying these tax issues and making certain suggestions for amendments in the Income-tax Act and the Companies Act. This position paper is published on pages 1254 to 1263.

 (vi)  New books released by ICAI:
  (a)  Technical Guide on Audit of NBFCs.
  (b)  Practical Approach to General Insurance Management.
  (c)  Social Audit of Public Money.
  (d)  Excellence in Financial Reporting Illustrative Guide to Presentation and Disclosures.
  (e)  Drafting, Conveyancing, Registration and Stamping of Commercial and other Documents.
  (f)  Changing Times in Government Accounting — A Status Report.
  (g)  Study on Co-ordination of Internal Auditor with Functional Heads.
 
(vii)  New branches and buildings of ICAI:
The following new branches and buildings at branches have been opened by ICAI:
  (a)  Latur branch of WIRC.
  (b)  Ganganagar branch of CIRC.
  (c)  New building at Bhilai branch of CIRC.
  (d)  New building at Sangrur branch of NIRC.
   (Refer Page 1149)

ICAI And Its Members

ICAI and Its Members

1. Disciplinary Case


In the case of ICAI vs Shri Lokesh Dhawan (reported on page
1230 of C.A. Journal, February, 2010 issue), the member was a partner of a firm
of Chartered Accountants which was appointed as a statutory auditor of a public
sector bank. In the complaint filed by this bank, it was alleged that: (i) the
member had demanded and collected from the bank large sums of money as advance
for T.A. and other expenses. He had claimed expenses beyond the entitlement as
per the RBI guidelines, and did not refund the excess amount to the bank; (ii)
He had canvassed for procuring a computer business for his sister concern from
the bank by using his position as a statutory auditor; and (iii) He had hired
the services of a C.A. who was not his partner or employee, to conduct audit of
the bank.

The disciplinary body, after examining the evidence produced
by the parties, held that the member was guilty of “other misconduct”. The
council accepted this finding and referred the matter to the High Court to award
punishment to the member by removing his name from the Register of Members for
three months.



The Delhi High Court has held that there is no definition of
the expression “other misconduct” in the C.A. Act. Therefore, the High Court
held that the interpretation of this expression should be left to the council of
ICAI. The council is the disciplinary body comprised of peers who have several
years of experience. Further, the High Court held that in this case, the member
was unable to demonstrate that the above decision of the council and its
recommendation for punishment was either procedurally flawed or that on merits
it was perverse or mala fide. Therefore, the High Court accepted the finding of
the council and ordered that the name of the member be removed from the Register
of Members for a period of three months.


2. Some Ethical Issues


The Ethical Standards Committee of ICAI has clarified some
issues for the benefit of its members on page 1216 of C.A. Journal, February
2010 issue. Some of the issues are listed
below.




(i) If a member is a partner in more than one firm, is it
permissible to print the names of all the firms on visiting cards,
letterheads, stationery, etc.?

A. There is no prohibition under Clause (7) of Part I of
the First Schedule to the C.A. Act.

(ii) Is a Chartered Accountant / Firm permitted to use logo
on letterheads, stationery, etc.?

A. The use of logo/monogram of any kind/form/style/design/colour
whatsoever on any display material or media, e.g., paper stationery,
documents, visiting cards, magnetic devices, internet or signboard by a
Chartered Accountant or a firm of Chartered Accountants is prohibited.
Use/printing of member/firm name in any other manner tantamount to a
logo/monogram is also prohibited. However, a common CA logo has been allowed
to members, provided it is used in the correct manner within the terms of the
council’s guidelines.

(iii) Is the office of a Chartered Accountant permitted to
go in for ISO 9001: 2000 certification or other similar certifications?

A. There is no bar for a member to go in for ISO 9001 :
2000 certification or other similar certifications. However, the member cannot
use the expression like “ISO Certified” on his professional documents,
visiting cards, letterheads or sign boards, etc.

(iv) If a member has passed any additional course of the
ICAI, is he permitted to print such qualification on visiting cards,
letterheads and other stationery ?

A. Under Clause (7) of Part I of the First Schedule to the
CA Act, a member is permitted to print such qualification on his visiting
cards, letterheads and other stationery. However, he cannot use the
designation “Information System Auditor’ or the like.

(v) Can a Chartered Accountant in practice accept audit in
case the audit fee of the previous auditor remains unpaid?

A. In case the undisputed audit fees for carrying out the
statutory audit under the Companies Act, 1956 or various other statutes have
not been paid, the incoming auditor should not accept the appointment unless
such fees are paid. In respect of other dues, the incoming auditor should, in
appropriate circumstances use his good office in favour of his predecessor to
have the dispute as regard the fees settled.


The council has taken the view that the provision of audit
fee made in the accounts signed by both the auditor and the auditee shall be
considered as ‘undisputed’ audit fees. In this connection, attention of members
is invited to the Council General Guidelines, 2008, dated 08.08.2008 (also
published on page 686 of the October 2008 issue of C.A . Journal). Under this
notification, a member in practice shall be deemed guilty of professional
misconduct if he accepts the appointment as an auditor of an entity in case the
undisputed audit fee of another Chartered Accountant for carrying out statutory
audit, under the Companies Act, 1956 or various other statutes, has not been
paid.

3. Accounting for foreign
exchange variation prior to commencement of commercial operation




Facts

A company is in the process of setting up a refin-ery in the state of Madhya Pradesh. It is procuring items relating to its plant and machinery for the construction of the refinery from foreign vendors. The transaction is recorded at the rate prevailing on the transaction date. The difference in foreign exchange variation between the transaction date and the settlement date is booked under ‘pre-operative expenditure pending capitalization’, on the ground that the company is yet to commence its commercial operations. No profit and loss account has been prepared by the company and only the necessary details, as per Part II of Schedule VI to the Companies Act, 1956 have been disclosed as ‘pre-operative expenditure pending capitalization’.

Based on the above facts, the company had sought the opinion of the Expert Advisory Committee regarding accounting for foreign exchange differences arising on settlement of liability for procurement of items of plant and machinery from abroad, prior to commencement of operation.

EAC  Opinion

The committee noted that Standard AS-11 was notified by the central government under the Companies (Accounting Standards) Rules, 2006 which came into effect in respect of accounting periods commencing on or after December 07, 2006. The notified AS-11 contains a footnote that ‘the accounting treatment of exchange differences contained in this Stan-dard is required to be followed irrespective of the relevant provisions of Schedule VI to the Companies Act,1956’.

On the basis of the above, the committee opined that in respect of transactions in foreign currencies entered into on or after April 01, 2004, but before March 31, 2007, the exchange difference arising on settlement of monetary liability (letter of credit) incurred for procurement of items of plant and ma-chinery from abroad should be adjusted to the cost of the related fixed assets. However, in accordance with AS-11 (revised 2003), the foreign exchange dif-ferences arising on or after April 01,2007 should be charged/credited to the profit and loss account of the period in which the same arise. While applying the above accounting treatment, the requirements of Para 4 (e) (read with its explanation) of AS – 16 “Borrowing Costs” should also be taken into con-sideration. Therefore, the committee is of the view that for this purpose, a profit and loss statement will have to be prepared by the company even during the construction phase. Hence, the foreign exchange differences should not be treated as indi-rect expenses relating to the project and, therefore, not be accumulated as pre-operative expenditure pending capitalization for allocation over the assets of the refinery. [Refer pages 1246 to 1247 of C.A. Journal, February, 2010 issue]


4. Implementation of  IFRS in  India

The Ministry of Corporate Affairs has issued a press note dated 22.1.2010 in which the roadmap for implementation of IFRS in India has been given as follows:

    i) There will be two separate sets of Accounting Standards u/s 211 (3C) of the Companies Act.
The first set would comprise of Indian Ac-counting Standards which are converged with the IFRS’s and which shall be applicable to the specified class of companies. The second set of Accounting Standards will comprise of the existing Indian Accounting Standards and will be applicable to other companies, includ-ing small and medium companies.

    ii) The first set of Accounting Standards (i.e., converged accounting standards) will be applied to specified classes of companies in phases as below:

    Phase – I : The following categories of companies will convert their opening balance sheets as on the first day of the financial year, commencing on or after 1st April, 2011, in compliance with the notified accounting stan-dards which are converged with IFRS. These companies are: (i) Companies which are part of NSE – Nifty 50; (ii) Companies which are part of BSE – Sensex 30; (iii) Companies whose shares or other securities are listed on stock exchanges outside India; and (iv) Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores.

    Phase – II : Companies, whether listed or not, having a net worth exceeding Rs. 500 crores but not exceeding Rs. 1,000 crores, will convert their opening balance sheet on the first day of the financial year commencing on or after 1st April, 2013, in compliance with the notified accounting standards which are converged with IFRS.

    Phase – III : Listed companies which have a net worth of Rs.500 crores or less will convert their opening balance sheet as on the first day of the financial year commencing on or after 1st April, 2014, in compliance with the notified accounting standards which are converged with IFRS.

    Companies which fall in the following categories will not be required to follow the notified
 accounting standards which are converged with the IFRS (though they may voluntarily opt to do so), but need to follow only the notified accounting standards which are not converged with the IFRS. These companies are:

    a) Non-listed companies which have a net worth of Rs. 500 crores or less and whose shares or other securities are not listed on Stock Ex-changes outside India.

    b) Small and Medium Companies (SMCs).

    iv) Separate roadmaps for banks and insurance companies will be announced at a later date. Necessary amendments in the Companies Act as well as Schedule VI of the Companies Act will be introduced during the next budget session of the Parliament.

5. Accounting and Auditing Standards

The following accounting and auditing standards have been issued by ICAI. The texts of these standards have been published in the February, 2010 issue of the C.A. Journal, on the pages mentioned below. It may be noted that the ‘Standards on Auditing’ will come into force for audit of financial statements for periods beginning on or after 1.4.2011. Other accounting and internal audit standards are recommendatory at present.

(i) Standard on Auditing (SA) 700 (Revised)
– Forming an Opinion and Reporting on Financial Statements (P. 1327 – 1338).

    ii) Standard on Auditing (SA) 705 – Modifications to the Opinion in the Independent Auditor’s Report. (P. 1339 – 1348).

    iii) Standard on Auditing (SA) 706 (Revised) – Emphasis of Matter Paragraphs and other Matter Paragraphs in the Independent Audi-tor’s Report (P.1349 – 1352).

iv)    Standard on Internal Audit (SIA) 17 – Consideration of Laws and Regulations in an Internal Audit (P.1353 – 1357).

v)    Accounting Standard for Local Bodies (ASLB) 5 – Property, Plant and Equipment (P.1358 – 1367).
(vi)    Accounting Standard for Local Bodies (ASLB) 6 – Events after the Reporting Date (P.1368– 1371).

    6. ICAI News

(Note: Page Nos. given below are from the C.A. Journal, February, 2010 issue)
 

    iii) CA Final Results

Results of the CA Final Examination, held in No-vember, 2009, were declared in January, 2010. It has been reported that the performance of students in the final examination has been very poor as compared to last four examinations. ICAI will have to study the reasons for this fall in the performance of students and take remedial steps to improve the position. The figures, as reported, are as hereunder:
    
i) CA T.N. Manoharan awarded PADMA SHRI
CA T.N. Manoharan, President of ICAI, 2006– 07, has been awarded the title of ‘PADMA SHRI’ by the President of India. It is a great honour and recognition for our profession. Shri Manoharan is from the BCAS family and a regular faculty member in most of BCAS’s programmes. Our greetings and best wishes to him on his achievement!

    ii) Branches of ICAI

    a) A new branch has been opened on 16.12.2009 at Gandhidham (WIRC). Further, branches will be opened at Ratlam, Pali, Ganganagar, Bhavnagar and Tirupati (Refer P. 1205 and 1310).

    b) New branch buildings (ICAI Bhavans) in-augurated at Vapi on 1.12.2009, Baroda on 13.12.2009, Ranchi on 15.12.2009, Guwahati on 18.12.2009, Vijaywada on 25.1.2010, Belgaum on 26.1.2010, Hubli on 26.1.2010, Pune on 26.1.2010, and Nashik on 27.1.2010. (Refer P. 1210).
 

    iv) Signature on Audit Reports

ICAI has decided that members should include the Registration No. of the firm, as allotted by ICAI in the audit reports and signed by them, in addition to other requirements relating to the signature on the audit report as prescribed under the relevant standard on auditing. Further, the auditor should ensure that the resolution passed by the company for appointment of the statutory auditor u/s 224 of the Companies Act, contains the Registration No. of the C.A. Firm. These requirements will come into effect from 1.4.2010 (P. 1312).


    v) Submission of Form112 by students for taking other courses

As a measure of amnesty, ICAI has decided that students who have not filed Form No.112 so far, can file the same on or before 31.3.2010. No request for condonation of delay in submitting Form No. 112 will be considered after 1.4.2010. (P. 1312)

    vi) Results of Elections to Central and Regional Councils

Details of members elected to the Central and Regional Councils for three years from February 2010 – 2013 have been published on P. 1314 – 1316.

    vii) New Office Bearers of WIRC

The following members have been elected as of-fice bearers of WIRC for one year from February 2010.

(a) Shri  Sanjeev  Lalan, Mumbai    – Chairman

(b) Shri Makrand Joshi, Nagpur    – Vice Chairman

    c) Shri Mangesh Kinare, Mumbai  – Secretary

    d) Shri Parag Rawal, Ahmedabad – Treasurer
 

Our greetings and best wishes to them for a successful term of office!

    viii) Our New President and Vice President

At the election held on 12.2.2010, the council has elected:

    Shri Amarjeet Chopra, New Delhi as our New President; and
    Shri G. Ramaswamy as our New Vice President

We convey our greetings and best wishes for their successful terms in office. We hope they will be able to provide better leadership to our profession during the year.

ICAI And Its Members

ICAI and Its Members

1. Disciplinary case :


In the case of ICAI v. Shri Raj Kumar N. Iyer, the
member had given tax audit report u/s.44AB of the Income-tax Act to his client.
The said audit report was not accompanied by the Balance Sheet, and Profit &
Loss Account as annexure to Form 3CD. During the course of
a survey u/s.133A, a few days after the said report was filed with the AO, it
was found that the assessee had no books of accounts. When the statement of the
member was recorded by the AO, he admitted that the assessee did not maintain
proper books of account as mentioned in the tax audit report. The member also
stated that no books of accounts were generated through the computer and,
therefore, he stated that (i) it was not possible to furnish Trading and Profit
& Loss Account and Balance Sheet, (ii) the opinion given in Form 3CB that the
accounts give true and fair view of the financial statements was not correct,
and (iii) the audit report should be treated as incorrect.

On these facts, the Assessing Officer complained to the
Institute that the member had given a false audit certificate in Form 3CB and
3CD and, therefore, he was guilty of professional and/or other misconduct.

In the disciplinary proceedings, the member pleaded guilty
under Regulation 15(2) of the C.A. Regulations. Therefore, he was held to be
guilty of professional misconduct under Clause (8) of Part I of the Second
Schedule. The Council referred the matter to Bombay High Court with a
recommendation to reprimand the member.

At the time of hearing, the member did not attend before the
High Court. However, the High Court has taken the view that since the member has
admitted the guilt, he deserves a lenient punishment. On this basis the High
Court accepted the recommendation of the Council and ordered that the member be
reprimanded. (C.A. Journal for February, 2009 — Page 1377).

2. New office bearers of the Council :


The Council of ICAI has elected new office bearers for
2009-10 on 5-2-2009. 4 Standing Committees and 36 Non-standing Committees are
also elected as under :

(i) Shri Uttam Prakash Agarwal from Mumbai is elected as
President. Our greetings and best wishes to him for a successful term of
office.

(ii) Shri Amarjit Chopra from New Delhi is elected as
Vice-President. Our greetings and best wishes to him for a successful term of
office.

(iii) Executive Committee — President, Vice-President, C.A.
V. C. James, Abhijit Bundopadhyay, K. P. Khandelwal and V. K. Garg.

(iv) Examination Committee — President, Vice-President,
C.A. R. S. Adukia, Preeti P. Mahatme, J. Venkateswarlu, Manoj Fadnis and Shri
K. R. Maheshwari.

(v) Disciplinary Committee (Old Cases) — President,
Vice-President, C.A. G. Ramaswamy, K. K. Gupta and Shri O. P. Vaish.

(vi) Disciplinary Committee (New Cases) — President, C.A.
S. Santhanakrishnan, Anuj Goyal, Shri R. K. Handoo and Shri M. P. Lohia.

(vii) Board of Discipline (New Cases) — President, C.A. K.
P. Khandelwal and Shri S. K. Nayak.

(viii) Chairmen of some of the Other Committees :


3. The Companies Bill, 2008 :


The Companies Bill, 2008 has been introduced in the Lok Sabha
on 23-10-2008 to replace the existing Companies Act, 1956. There is no proposal
about rotation of statutory auditors in the Bill. However, some of the
provisions are proposed to ensure that the independence of statutory auditors is
not impaired. In brief, these provisions are as under :

  • Special Resolution will be required if an auditor, other than the retiring auditor, is proposed to be appointed.

  • An auditor who has direct financial interest in the company or who receives any loans or guarantee from the company or who has any business relationship (other than as an auditor) with the company cannot be appointed as auditor.

  • A person whose relative is in employment of the company as a director or key managerial personnel cannot be appointed as auditor.

  • If a firm is appointed as auditors, only a partner of the firm, as authorised by the firm, can sign the audit report on behalf of the firm.

  • An auditor cannot accept any other assignment from the company like accounting, book keeping, internal audit, design and implementation of any financial information system, actuarial services, investment advisory services, investment banking services, financial services and management services.

  • Audit report shall state whether the financial statements comply with the accounting standards and auditing standards. It may be noted that the National Advisory Committee appointed by the Government will now be required to advise the Government about accounting standards as well as auditing standards. In other words, the auditors will have to comply with auditing standards laid down by the Government on the advice of the National Advisory Committee.

  •  Auditor shall have a right to attend every annual general meeting and shall have a right to be heard at such meeting on any part of the business conducted at the meeting.

  • If the auditor makes default in complying with the provisions relating to reporting on the financial statements, provisions prohibiting rendering of other services, and allowing any person other than an authorised person to sign audit report, he shall be liable to pay fine of Rs.25,000, which may extend to Rs.5 lacs. If it is found that the auditor has knowingly or willfully contravened any of the above provisions, he shall be punishable with imprisonment for a term up to one year or with fine of Rs.1 lac, which may extend to Rs.25 lacs or with both. It is also provided that in such cases, the auditor will have to refund the fees and also pay for damages to the company or to any other persons for loss arising out of incorrect or misleading statements of particulars made in the audit report.

From the above provisions proposed in the Companies Bill, 2008, it will be noticed that these provisions are more stringent and are being introduced with a view to achieve the goal to strengthen the independence of statutory auditors and improve quality of audit. It appears that the Government is keen to ensure that the independence of statutory auditors is not affected by any weakness in the corporate governance.

4. Accountancy Museum:

ICAI – Accountancy Museum was opened at ICAI Bhavan, Noida, on 2-2-2009. The museum presents rare and historic images (evidence of the oldest balance sheet in human civilisation) and documentary evidence of the evolution of accountancy in India. The items on display include the minutes of Indian Accountancy Board (responsible for the birth of the Institute), first gold medals of R.A. final and CA final examinations, first annual report of the Council, our own first balance sheet, rare photographs and so on. It presents very unique images including documents that have been acquired from the British Museum, London, and other private collectors from India as well as abroad. This museum will serve as a great source of learning, inspiration and professional pride for all of us.

5. Results  of CA.  Examinations:

i) CPT (December, 2008) – out of 89,253 (including 11,588 girls) students who appeared, 34,251 (38.3%) passed CPT examination.

ii) Final (November, 2008) – Both Groups – Out of 14,606 students who appeared, 2,961 (20.27%) passed.

Group I – out of 6,588 students who appeared, 1,235 (18.76%) passed.

Group II – out of 9,235 students who appeared, 1,952 (21.13%) passed.

6. MoU with CPA Australia:

ICAI has signed  MoU with  CPA Australia.  As per the MoD reached, members of ICAI who are graduates will be eligible for CPA Australia membership on passing one paper on Business Strategy & Leadership. On the other hand, members of CPA Australia will be eligible for ICAI membership, subject to passing two papers on Corporate and Allied Laws and Taxation and two more papers on Advanced Auditing and Professional Ethics and Financial Reporting, if they have not already passed them as part of the CPA Australia programme.

This MoU will open professional opportunities to our members in Australia and this will bring the two countries, India and Australia, closer.

7. Auditing Standards:

The following Auditing Standards are issued and published in C.A. Journal for February, 2009 on pages stated below:

i) Standard on International  Audit  (SIA) 12

Internal  Control  Evaluation   (Page 1444-1448)

ii) Standard  on Internal Audit  (SIA) 13

Enterprise  Risk Management  (Page 1449-1450)

iii) Revised Standard  on Auditing  (SA) 530

Audit  Sampling (Page 1451-1456)

iv) Revised Standard  on Auditing  (SA) 540

Auditing Accounting Estimates, including Fair Value Accounting Estimates and Related Party Disclosures.

8. ICAI News:

(Note: Page Nos. given below are from CA. Journal for February, 2009)

i) Enhancing Audit  Quality:

Some observations made by the Financial Reporting Review Board are listed on Page 1417 in order to enable members to improve the quality of audit of corporate bodies. These observations relate to presentation under various heads in Balance Sheet and Profit & Loss AI c. as required under Parts I and 11 of Schedule VI of the Companies Act.

(ii) Certificate Course on Enterprise Risk Management:
The Internal Audit Standards Board of ICAI has launched the above course for our members. The duration of this course is 200 hours spread over 6 weekends. Details are given on Page 1431.

iii) ICAI publications:

a) Manual  on Concurrent  Audit  of Banks.

b) Technical Guide on Review and Certification of Investment Risk Management Systems and Process of Insurance Companies.

c) Guide to Implementing Enterprise Risk Management.


Miscellaneous

CARO Audit Report in case of a company where in earlier years, manipulations admitted by the erstwhile management and previous years audit reports withdrawn by earlier auditors

Satyam Computer Services Ltd. — (31-3-2009)

Compiler’s Note:

The main Audit Report of the Company was published in February 2011 (pages 87-92) issue of BCAJ. Given hereunder are relevant extracts from the CARO report. Since disclosures in the Notes to Accounts referred to in the audit report are voluminous, the same are not reproduced here. The same can be made available by BCAS on request.

Annexure to the Auditors’ Report:

(Referred to in paragraph 5 of our report of even date)

    (i) Having regard to the nature of the Company’s business/activities/result/transactions, etc., clauses (viii), (xii), (xiii), (xiv), (xix) and (xx) of CARO are not applicable.

    (ii) In respect of its fixed assets:

    (a) The Company has maintained records of fixed assets showing particulars, including quantitative details and situation of the fixed assets situated within India except that quantitative details, asset description, etc., in respect of some of the fixed assets, need to be updated in the Fixed Assets Register. According to the information and explanations given to us, in respect of the fixed assets situated at the overseas branches of the Company, the Company has not maintained complete records showing the quantitative details and situation of fixed assets.

    (b) The fixed assets were not physically verified during the year by the Management. Refer to paragraph 18(c) of the Auditors’ Report also.

    (c) The fixed assets disposed of during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(iii) In respect of its inventory:

    (a) As explained to us, the inventories were not physically verified during the year by the Management.

    (b) Since no physical verification was conducted, reporting on the procedures followed by the Management does not arise.

    (c) In our opinion and according to the information and explanations given to us, the Company has not maintained proper records of its inventories during the year, though the required adjustments to account for the inventory in the books of account were made based on the information available with the Management as at the year end. Refer to Paragraph 12(d) of the Auditors’ Report also.

    (iv) Subject to the comments in paragraphs 8 and 12(b) of the Auditors’ Report, in respect of loans, secured or unsecured, granted by the Company to companies, firms or other parties covered in the Register u/s.301 of the Act :

        (a) With respect to the transactions recorded for the period from 1st April to 31st December, 2008, as the Register maintained by the Company (updated as at that date) has been seized by the Income Tax Department, only photocopies were made available for our verification. Subject to our reliance on such photocopies, the Company has not granted or taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the Register maintained in pursuance of section 301 of the Act, during the period from 1st April to 31st December, 2008.

        (b) According to the information and explanations given to us, the Company has not granted or taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the Register maintained in pursuance of section 301 of the Act for the period from 1st January to 31st March, 2009.

    (v) In our opinion and according to the information and explanations given to us, there was no adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and the sale of goods and services. During the course of our audit, we have observed several major weaknesses in such internal control system. Refer to paragraph 18(a) of the Auditors’ Report also.

    (vi) Subject to the comments in paragraphs 8 and 12(b) of the Auditors’ Report, in respect of contracts or arrangements entered in the Register maintained in pursuance of section 301 of the Act, to the best of our knowledge and belief and according to the information and explanations given to us and subject to our reliance on the photocopies of the Register for the period from 1st April to 31st December, 2008 [Refer Item (iv)(a) above]:

        (a) The particulars of contracts or arrangements referred to in section 301 of the Act that needed to be entered in the Register maintained under the said section have been so entered.

        (b) There were no transactions in excess of Rs.5 lakhs in respect of any party.

    (vii) Subject to our comments in paragraph 8 of the Auditors’ Report, according to the information and explanations given to us, the Company has not accepted any deposit from the public during the year.

    (viii) In our opinion, read with our comments in paragraph 18(a) of the Auditors’ Report, the Company did not have an internal audit system commensurate with its size and nature of its business.

    (ix) According to the information and explanations given to us in respect of statutory dues:

        (a) Whilst the Company has been generally regular in depositing undisputed dues relating to Investor Education and Protection Fund, Wealth Tax and other material statutory dues applicable to it with the appropriate authorities, there were significant delays in depositing undisputed dues in respect of Provident Fund, Employees’ State Insurance, Tax Deducted at Source, Sales Tax/VAT, Works Contract Tax and Service Tax.

        (b) There were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Wealth Tax, Sales Tax/VAT, Service Tax, Cess and other material statutory dues in arrears as at 31st March, 2009 for a period of more than six months from the date they became payable except in respect of Tax Deducted at Source amounting to Rs.171,945 and certain overseas taxes amounting to Rs.866,456. As regards to income tax, we are unable to comment on the dues in arrears as on 31st March, 2009 for a period of more than six months from the date they became payable in view of the matters described under paragraph 14 of the Auditors’ Report.

c) Details of dues of Income Tax, Sales Tax, Service Tax and Cess which have not been deposited as on 31st March, 2009 on account of disputes are given below:
(not reproduced here)

    x) The accumulated losses of the Company at the end of the financial year have exceeded the net worth of the Company. Further, the Company has incurred cash losses in the financial year ended 31st March, 2009. For the reasons stated in paragraph 15 of the Auditors’ Report, we are unable to comment on the cash losses for the immediately preceding financial year.

    xi) In our opinion and according to the explanations given to us, the Company has not defaulted in the repayment of dues to banks. The Company does not have any dues to financial institutions and has not issued any debentures.

    xii) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for loans taken by some of its sub-sidiaries from banks and financial institutions, as made available to us for our verification, are not prima facie prejudicial to the interests of the Company considering the nature of the guarantees, purposes and needs.

    xiii) In our opinion and according to the information and explanations given to us, term loans have been applied for the purposes for which they were obtained, other than temporary deployment pending application.

    xiv) In view of our comments in paragraph 8 of the Auditors’ Report, we are unable to comment whether the funds raised on short-term basis have been used during the year for long-term investment.

    xv) The Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained u/s.301 of the Companies Act, 1956 during the year.

    xvi)To the best of our knowledge and according to the information and explanations given to us, the details of fraud on or by the Company noticed or reported during the year are given below:

    a) As stated in paragraph 6 of the Auditors’ Report, there were various financial irregularities which are more fully described in Note 3 of Schedule 18.

    b) Various other instances of fraud noticed by the Management involving the employees of the Company/vendors of the Company, the amounts whereof were not material and the same have been suitably dealt with in the financial statements of the Company.

Miscellaneous

From Published Accounts

Section B : Miscellaneous

9 Non disclosure of items in companies wherein Joint Control
is exercised (as required by AS 27)

Electrosteel Castings Ltd. — (31-3-2009)

From Notes to Accounts

26(a)The Company has invested in equity shares of Domco
Private Limited (DPL), a Company incorporated in India and has joint control
(proportion of ownership interest of the Company being 50%) over DPL along with
other venturers (the Venturers). The Venturers had filed a petition before the
Company Law Board, Principal Bench, New Delhi (CLB) against the Company on
various matters, including for forfeiture of the Company’s investment in equity
shares of DPL. The Company had inter alia filed a petition before the Hon’ble
High Court of Jharkhand at Ranchi. The Hon’ble High Court of Jharkhand at Ranchi
upheld the Company’s appeal and decided that the matter would have to be
referred for Arbitration. The Venturer has challenged the aforesaid judgment in
the Divisional Bench of the Hon’ble High Court of Jharkhand at Ranchi. Pending
final outcome of the matter and since, the other Venturers are not providing the
financial statements of DPL, disclosures as regards contingent liability and
capital commitments, if any, aggregate amounts of each of the assets,
liabilities, income and expenses related to the Company’s interest in DPL have
not been made in these accounts.



10 Change in accounting policy on account of change of
management estimates for warranty provision and depreciation

MRF Ltd — (30-9-2009)

From Notes to Accounts

Changes in Accounting Policies

i) The warranty provision has been recognised based on
management estimates regarding possible further outflow on servicing the
customers during the warranty period, on the sales affected during the year.
These estimates are computed on a scientific basis, as per past trends of such
claims, which hitherto were accrued and recognised based on claims preferred.
Due to this change, the profit for the year is lower by Rs.21.25 Crore.

ii) The Company has hitherto been charging depreciation on
windmills on the Straight Line Method, as Continuous Process Plant at the rates
and on the basis specified in Schedule XIV to the Companies Act, 1956. The
management has thought it prudent to switchover from the Straight Line Method to
the Reducing Balance Method to follow a uniform practice and has re-calculated
the depreciation from the date of such assets coming into use. As a result, the
charge for depreciation is more by Rs. 15.75 Crore (including Rs. 8.11 Crore net
for Deferred Tax of Rs. 4.17 Crore for the earlier years) and the profit for the
year is lower by the said amount.

From the Auditors’ Report

In our opinion and to the best of our information, and
according to the explanations given to us, the said accounts, read with Note No.
I (Q) in the notes forming part of the accounts, in respect of changes in
accounting policies relating to provision for warranty and change in the basis
of providing depreciation, resulting in the profit for the year and the reserves
being stated lower by Rs. 37 Crore and read together with other notes thereon,
give the information required by the Companies Act, 1956, in the manner so
required and also give a true and fair view, in conformity with the accounting
principles generally accepted in India;

Nature of Provisions


Warranties


Sales Tax / VAT


Excise Duty

 

2008-09

2007-08

2008-09

2007-08

2008-09

2007-08


Carrying amount at thebeginning of the year

26.09

15.06

18.14

7.00

1.82

Nature
of Provisions

Liquidated damages

Other Litigation Claims

 

Total

Carrying
amount at the

2008-09

2007-08

2008-09

2007-08

2008-09

2007-08

 

 

 

 

 

 

beginning
of the year

11.88

9.09

–

–

57.93

31.58

Additional provision

 

 

 

 

 

 

made
during the year

–

2.79

1.98

–

27.98

32.27

Amounts used

 

 

 

 

 

 

during
the year

–

–

–

–

2.49

1.77

Unused amount reversed

 

 

 

 

 

 

during
the year

–

–

–

–

9.18

4.15

 

 

 

 

 

 

 

Carrying amount at the

 

 

 

 

 

 

end of
the year

11.88

11.88

1.98

–

74.24

57.93
11. Disclosures for nature of and movement in provisions as per AS 29
Crompton Greaves Ltd — (31-3-2009)
From Notes to Accounts
(a)Movement in provisions:

(b)Nature of Provisions:

  •     Product Warranties: The Company gives warran-ties on certain products and services in the nature of repairs / replacement, which fail to perform satisfactorily during the warranty period. Provi-sion made represents the amount of the expected cost of meeting such obligation on account of rec-tification / replacement. The timing of outflows is expected to be within a period of two years.

  •     Provision for sales tax represents sales tax liability on account of non-collection of declaration forms and other legal matters which are in appeal under the Act / Rules.

  •     Provision for excise duty represents the differen-tial duty liability that is expected to materialise in respect of matters in appeal.

  •     Provision for liquidated damages has been made on contracts, for which delivery dates are exceeded and computed in a reasonable and prudent manner.

  •     Provision for litigation related obligations represents liabilities that are expected to materialise in respect of matters in appeal.


(c)Disclosure in respect of contingent liabilities:
Refer Schedule 19.

12. Forfeiture of advance received against sale of immovable property not recognised in the Profit and Loss account
Crompton Greaves Ltd— (31-3-2009)

From Notes to Accounts

Other liabilities include Rs. 8.30 Crore received as ad-vance against sale of immovable property of the Com-pany. As per agreements with buyers, the Company is entitled to forfeit the said amounts, if the buyers do not comply with the conditions of sale within the stipulated time. Since, the buyers have failed to comply with the conditions and hence, the Company has forfeited these amounts received in accordance with the terms of the agreements. The buyers have filed suits in the Courts for recovery of the advances paid by them. The Com-pany contends that as per the force majeure clause of the agreements is not required to be refunded. Pending disposal of the cases by the Courts, the Company, as a measure of prudence, has not recognised the said

amount in the profit and loss account.

ORDERS OF CIC

fiogf49gjkf0d

Right to Information

  •  
    Section 2(f) of the RTI ACT: INFORMATION     Section 2(f) which defines the word
    ‘information’ provides as follows.

In this Act, unless the context otherwise requires.


(f) ‘Information’ means any material in any form,
including records, documents, memos, e-mails, opinions, advices, press
releases, circulars, orders, logbooks, contracts, reports, papers, samples,
models, data material held in any electronic form and information relating
to any private body which can be accessed by a public authority under any
other law for the time being in force;


“According to the Commission, ‘information’ which is
requested u/s.6(1) of the RTI Act refers to only that information which is
available on record. Such information cannot be created. The terms ‘opinions’
and ‘advices’ which are brought within the purview of ‘information’ u/s.2(f) of
the RTI Act are opinions or advices that are already present on record. It does
not mean that if the opinion or advice of the public authority is sought
u/s.6(1) of the RTI Act, the said opinion or advice shall have to be created. It
must be an opinion or advice which is already on record. The creation of
information by the public authority every time such information is sought
u/s.6(1) of the RTI Act shall render governance impossible. However, the
Commission has observed that there are certain practices within a department
that are peculiar to that department. Such practices or understanding within the
department may not be present in a recorded form. Where information sought
u/s.6(1) of the RTI Act pertains to such general practices or understanding,
then the same must be provided to the applicant, even if such practices or
understanding are not specifically on record.”

The Appellant in the case before the Commission had cited one
order of the Supreme Court of India in the matter of Khanapuram Gandaiah v
Administration Officer & Ors. 2010(1) ID 287 (SC). The Supreme Court of India,
while dismissing the petition, interpreted section 2(f) of the RTI Act and
observed that an applicant u/s.6 of the RTI Act can get any information which is
already in existence and accessible to the public authority under law. The
applicant is entitled to get a copy of the opinions, advices, circulars, orders,
etc but he cannot ask for any information as to why such opinions, advices,
circulars, orders, etc have been passed, especially in matters pertaining to
judicial decisions.



Note: I have not covered in this reporting, the facts of the
case as same are not required to bring out the analysis and interpretation
made of the provisions of Section 2(f).


[Dr. Jitendra Nath Gupta vs. PIO & SDM (Civil Lines):
Decision No. CIC/SG/A/ 2010 / 00 2398/ 9878 of 22.10.2010] [2010(2) ID 593 (CIC,
DELHI)]

? Mr. Virajoo Kumar had asked Telecom Regulatory Authority of
India (TRAI) to provide him certain information in respect of Mobile no.
09304549785..

PIO of TRAI replied to inform the applicant that no such
information was being maintained by TRAI.

During the hearing before the Commission, the representative
of TRAI submitted that TRAI can call for such information from the service
provider as it needs for its own purposes by passing an order in writing but the
information requested for by appellant is not wanted by TRAI and therefore, it
is not bound to call for this information from the service provider.

As per the clause 2(f), information also includes
‘information relating to any private body which can be accessed by a public
authority under any other law for the time being in force.’ In other words, if
TRAI has authority under any law to access information from Reliance Company, it
can access that information for onward transmission to the information seeker.
According to Shri. Abraham, u/s.12of the TRAI Act,1997, TRAI has the authority
to call for information from the service provider by passing an order in writing
but this information should be such as is needed by TRAI for its own purpose. In
other words, according to him, TRAI cannot seek information from a private
entity for servicing the RTI Act.

Hereunder I reproduce paras 6 to 9 of the
decision –

6. Clause (a) of section 12(1) is reproduced
below –

‘(a) call upon any service provider at any time to furnish in
writing such information or explanation relating to its affairs as the Authority
may require’

Shri Abraham lays emphasis on the last 05 words of the above
clause viz. ‘as the Authority may require.’ It is his interpretation that this
expression means that TRAI can call for information only when it needs it for
its own purposes and not for the purposes of supplying it to the information
seeker under the provisions of the RTI Act.

7. We are afraid, the construction put on clause (a) by Shri
Abraham is not correct. According to us, the true meaning of the expression ‘as
the Authority may require’ is ‘as the Authority may direct’. In other words,
TRAI can call for such information from a private entity as it needs for its own
purposes as also for the purpose of servicing the RTI Act.

8. The above interpretation also finds support in the
Judgement dated 25.9.2009 of the Delhi High Court in WP (civil) No 765 of 2007 (Poorna
Prajna Public School Vs CIC) wherein High Court favoured wider interpretation of
the word ‘information’. The relevant part of para 16 of the judgement is
extracted below: –

“Further, information which a public authority can access
under any other law from private body is also ‘information’ u/s.2(f). The public
authority should be entitled to ask for the said information under law from the
private body. Details available with a public authority about a private body are
‘information’ and details which can be accessed by the public authority from
private body are also ‘information’ but the law should permit and entitle the
public authority to ask for the said details from a private body”.

DECISION

9. In view of the above, we are of the opinion that the
appellant is legally entitled to seek the information from TRAI u/s 2(f) of the
RTI Act and TRAI is mandated to call for such information from the service
provider (Reliance Company in this case) as mentioned hereinabove and furnish
the same to the appellant. We respectfully disagree with the view taken by other
Single Benches of the Commission.

[Virajoo Kumar vs. TRAI: Decision No. CIC/DS/ C/
2010/00 332 decided on 25.10.2010] [2010(2) ID 661(CIC DELHI)]

                          

                                                        PART B: The RTI Act, 2005

In the last issue (Feb 2011) I had reported on the directions issued by the Central Information Commission (CIC) on 09.12.2010 to all the Central Government’s Public Authorities through the Min-istries & Departments of Government of India. It appears that landmark initiative taken by the CIC is not bearing good fruit.

    Of the 1,600 public authorities (government departments, apex bodies, autonomous organisations and ministries) listed by the Commission, only 125 have obeyed its direc-tive and appointed transparency officers. The macro picture at the central level is no better with only 34 of 70 odd ministries and apex bodies appointing transparency officers. The ministries of finance, home and culture and the Prime Minister’s Office have done nothing except expressing their intention to appoint a transparency officer.

    The Department of Personnel and Training (DoPT), the parent department of the Commission, has taken exception to the directions and said that by giving such directions to departments, CIC has overstepped its brief. In its letter to the authority, DoPT has said that by appointing transparency officers CIC was trying to ‘create another bureaucracy’.

    CIC, however, feels that it is only trying to assign another responsibility to the same set of bureaucrats present in the government departments. Speaking to ET, Chief Central Information Commissioner Satyanand Mishra said, ‘We are examining the matter. The Com-mission does not have the powers to withdraw any of its orders. At the same time we don’t need to justify our orders. If any department has an objection it can only take legal recourse. Over the past few years in our deliberations as Information Commissioners, we had found that had the Ministries voluntarily disclosed information many applications would not have been filed. This is why the directive was given.’

Information on & Arround

  •     Gandhigiri for getting information:

Four members of Deshbhakti Andolan distributed roses to employees at the Charity Commissioner’s office in Worli one day in early February.
Deshbhakti Andolan resorted to Gandhigiri after the Charity Commissioner’s Office, in response to a query filed under the Right to Information Act by one of the andolan members, said it had lost pertinent files and papers.
Charity Commissioner on complaint made has assured that the file would be traced and information shall be provided.

  •     Working at the Commissions:

The Public Cause Research Foundation has analysed 79,813 decisions passed by the CICs and SICs across the country. The researchers found that in 59,631 cases, the information was delayed, but only 1,896 officials were punished. The report said had these penalties been imposed, the exchequer would have got nearly Rs. 86 crore during 2009-10. ‘Twenty-six Commissioners across the country did not impose a single penalty in the whole year’

  •     Working at crematoria in Mumbai:

Activist Anil Galgali, who sought information under the Right to Information Act, said those who register the number of deaths in the crematoria were over-worked.
There is a paucity of staff at the crematoria run by the municipal administration. With 36 posts lying vacant in the 46 crematoria run by the BMC, the delay in getting the last rites done has been inconveniencing citizens as well as the staffers.
The civic administration runs 46 crematoria, 7 cemeteries for Christians and 10 for Muslims. Apart from these, there are 125 privately-run ones and 11 powered by electricity.
Galgali said that after the RTI application was filed; the civic body issued a circular directing the authorities to fill the vacant posts.

                                             PART D: RTI & SUCCESS STORIES

Normally, my article contains 3 parts as would be observed above. Since long, I have been wanting to add PART D: containing success stories of RTI. BCAS Foundation & Public Concern for Governance Trust (PCGT) (where at I am a trustee) run 4 RTI Clinics and on an average 50 individuals visit these clinics in a month and are provided RTI guidance and they submit RTI applications and appeals etc. We now intend to arrange feedback on their applications etc. As such very few come back to report the success they get or solutions that they achieve though many have satisfactory results.

Similarly, I believe many CAs make RTI applications etc and have success stories.

It is with the above belief that I intend to add PART D as above to my article. I request all read-ers to send their RTI success stories in brief. We would like to report them here. Please join in this crusade.

Hereunder one success story:

Extracts from Akila Maheshwari’s email of 23 Feb 2011:

Dear Narayan Varmaji:

First of all let me profusely thank you and other members of PCGT and BCAS for guiding my hus-band Dr. Shiban Charagi to fight his case through RTI. He was not only successful to get justice for himself but for others too, when a large Goverment Organisation like B.A.R.C. (Bhabha Atomic Research Centre) under Department of Atomic Energy had to strictly adhere to Supreme Court Judgements of 12th May 2008 by Justice Markandeye Katju.

BARC has started informing officers at all levels about their CR Grading by their Superiors. Also an officer can challenge his CR grading by refusing to put his signature on the intimation of the CR Grading.

My husband (who has the rare privilege of being listed in MARQUIS who is who in the world) was denied PRIS (Performance related incentives scheme) on the basis of poor assessment by his immediate supervisor. My husband has been a UNESCO Scholar. He was a one of the few employees (out of 15300) denied PRIS on poor CR grading. His CR was assessed in a hurry by a biased supervisor. He was also denied facilities for research work and manpower assigned to him removed and he was thereby harrased and humiliated.

My husband filed a letter of grievances to the PMO. This was forwarded to the Secretary DAE. Other reminders followed. But no action took place at ground level.

Later my husband took guidance from BCAS and was successful in getting a sum of over a lakh rupees (pre tax deduction). He was informed of his previous grade in CR. Later his grading was revised. After re-assessment PRIS sanctioned. This is the first such case in the history of the Department of Atomic Energy.

A battle that would have cost lakhs of rupees if taken up legally with CAT etc and would have been time consuming also and few years delay ended within two to three months of filing the RTI petition.

Hail RTI! Hail BCAS & PCGT and all the activists who made RTI a reality! RTI is a new pillar of Indian democracy.


Right To Information

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Tax records of political parties :


Very interesting and significant decision is given by CIC Mr.
A. N. Tiwari under appeal decided on 29-4-2008.

One Ms. Anumeha C/o. Association for Democratic Reforms (ADR)
of New Delhi had sought information from the CPIO, Central Board of Direct
Taxes, New Delhi as noted hereunder. The said application was transferred to
appropriate 9 CPIOs i.e., the appropriate Commissioners of Income-tax
(including CIT of Mumbai, New Delhi, Chennai). The information sought was on the
following three points :

(i) Whether the political parties mentioned in the RTI
application have submitted their Income Tax Returns for the years 2002-03,
2003-04, 2004-05, 2005-06, 2006-07.

(ii) PAN allotted to these parties.

(iii) Copies of the Income-tax returns filed by the
political parties for the afore-mentioned years along with the corresponding
assessment orders, if any.


While CIT, Jammu & Kashmir and Guwahati provided the
information, all other CPIOs declined to divulge information citing various
reasons, some of which were :


  •  Information is covered u/s.8(1)(d), (e), (g), (h) or (j) of the RTI Act.



  • Permanent Account Number (PAN) is a statutory number, which functions as a
    unique identification of each taxpayer. Making PAN public can result in misuse
    of this information by other persons and could compromise the privacy of the
    financial transactions linked with PAN.



  • Information relates to third parties who have objected to the disclosure of
    this information.

  •  Information is subject to confidentiality u/s.138 of the Income-tax Act, 1961.



In the first appeal made to CCIT, Bhubaneswar, the matter was
remanded to the CPIO but in other cases, concerned CCITs dismissed the appeals.

Before the Commission in the second appeal, the appellant
made certain submissions including the following :

(i) The avowed objective of a political party in a
democracy is to represent people in Parliament and Legislature that are
law-making bodies through the process of elections and that their very
existence is indicative of their goal of representing the interests of the
people who elect them to power.

(ii) Each and every act of theirs should be open to public
scrutiny. Transparency in their working and financial operation is essential
in larger public interest and all sections of government, including the
Income-tax Department, are duty bound to hold the public interest above the
interests of political parties.

(iii) The disclosure of financial information relating to
political parties including I.T. returns and assessment orders to general
public would promote such transparency and reduce the role of black money and
other undesirable, even illegal activities in the operation of political
parties.


Since the information sought involved significant issues, the
Commission decided to issue notices of hearing to all the 20 political parties
in respect of which information was sought and also to the Election Commission
and the Ministry of Law and Justice asking them to file their written
submissions.

Both the Election Commission and the Ministry of Law &
Justice filed their comments. Also political parties submitted their comments.
While CPI & CPM submitted ‘no objection’ to the disclosure of information, other
political parties including (1) BSP (2) NCP (3) The Samajwadi Party (4) BJP (5)
DMK (6) AICC objected to the disclosure of information on various grounds.

The applicant in her rejoinder to the replies submitted by
the above-noted parties made written submissions, which included following
points :


  • That she herself and her organisation are completely non-political and non-partisan. The Association for Democratic Reforms (ADR), which she represents, works for improving the governance, democratic, political and electoral processes in the country. Earlier also they have filed Public Interest Litigations (PILs) in the Delhi High Court, which resulted in the landmark and historic judgment of the Supreme Court (March 13, 2003) making it mandatory for candidates contesting elections to State Assemblies and Parliament to disclose their criminal antecedents, if any; assets and liabilities; and educational qualifications, by way of a sworn affidavit to be filed as an essential part of the nomination form.

  • It is also pertinent to refer to the recommendations of the Law Commission of India contained in their 170th Report on ‘Reform of the Electoral Laws’. An extract from para 3.1.2.1 of which is reproduced below :

“It is therefore, necessary to introduce internal democracy, financial transparency and accountability in the working of the political parties. A political party which does not respect democratic principles in its internal working cannot be expected to respect those principles in the governance of the country. It cannot be dictatorship internally and democratic in its functioning outside.”

The appellant also submitted that where plural remedies occur under different enactments, even if inconsistent, they empower a person to choose one, (Bihar State Cooperative Marketing Unions Ltd. v. Uma Shankar Saran, AIR 1993 SC 1222). In the alternative, assuming without prejudice that there is no inconsistency or discordance between the provisions of the RTI Act and S. 138 of the Income-tax Act and both can be given effect to, then the existence of an alternative remedy u/s.138 of the Income-tax Act or any other Act would not bar a citizen from seeking information tinder the RTI Act, 2005 and to accept any other interpretation would mean to render the RTI to a nullity. The RTI Act is an encompassing piece of iegislation and S. 2(f) of the said Act specifically defines ‘information’ to include If information relating to a private body which can be assessed by a public authority under any other lawfor the time being in force. ” The Right to Information Act, 2005 (RTI Act) on the other hand is a specific and special piece of legislation directed towards providing for access to information under the control of public authorities.
 
The Commission framed the following issue for determination:

Whether income tax returns along with its assessment order and PAN of various political parties can be considered to be exempted u/s.8(1)(d), (e), (g), (h) and (j) of the RTI Act and as to whether such information can be disclosed in larger public interest?

In its decision covering 22 paras and running into nearly 8 pages, the Commission, ruled on the above issue. Some paras in full and others in part are reproduced hereunder:

  • Political parties are a unique institution of the modern Constitutional State. These are essentially civil society institutions and are, therefore, non-governmental. Their uniqueness lies in the fact that in spite of being non-governmental, political parties come to wield directly or indirectly influence exercise of governmental power. It is this link between State power and political parties that has assumed critical significance in the context of the Right of Information Act which has brought into focus the imperatives of transparency in the functioning of State institu-tions. It would be facetious to argue that transparency is good for all State organs, but not so good for the political parties, which control the most important of those organs. For example, it will be a fallacy to hold that transparency is good for the bureaucracy, but not good enough for the political parties, which control those bureauracies through political executives.
  • In modern day context, transparency and accountability are spoken of together as twins. Higher the levels of transparency, greater the accountability. This link between transparency and accountability is sharply highlighted in the Preamble to the RTI Act.

  • The RTI Act aims at expanding accountability through transparency at all levels of governance. It is difficult to be persuaded by the argument that though political parties control the political executives who are their appointees these parties should be allowed to be insulated from the demands of transparency.

  • The question that additionally needs to be asked is whether the avowed purpose of the RTI Act, as set out in its Preamble to combat corruption is being achieved by allowing the finances of the political parties to remain beyond public scrutiny or even public view. There is now widespread concern about a hyphenated relationship developing between party finance and political corruption. The lack of openness and transparency in party finance is matched by the lack of adequate State regulation of such finance.

  • The scheme of the Act makes it abundantly clear that disclosure of information to a citizen is the norm and non-disclosure by a public authority an exception and it necessitates justification for any decision not to disclose information.

  • Democratic States, the world over, are engaged in finding solutions to the problem of transparency in political funding. Several methodologies are being tried such as State subsidy for parties, regulation of funding, voluntary disclosure by donors at least large donors and so on. The German Basic Law contains very elaborate provisions regarding political funding. S. 21 of the Basic Law enjoins that political parties shall publicly account for the sources and the use of their funds and for their assets. The German Federal Constitutional Court has in its decisions strengthened the trend towards transparency in the functioning of political parties. It follows that transparency in funding of political parties in a democracy is the norm and, must be promoted in public interest. In the present case that promotion is being effected through the disclosure of the Income-tax returns of the political parties.

Based on the above, the Commission  ruled as under:

The Commission directs that the public authorities holding such information shall, within a period of six weeks of this order, provide the following information to the appellant:

Income-tax returns of the political parties filed with the public authorities and the assessment orders for the period mentioned by the appellant in her RTI-application dated 28-2-2007.

The Commission also directs that the PAN of those political parties whose Income-tax returns are divulged to the applicant shall not be disclosed. It has been decided not to disclose PAN in view of the fact that there is a possibility that this disclosure could be subjected to fraudulent use, reports of which have lately been appearing. It is, therefore, considered practical that while Income-tax returns and the assessment orders pertaining to political parties be disclosed, there should be no disclosure of the PANs of such parties.
 
[Ms. Anumeha, Clo ADR, New Delhi v. CCITICIT of 9 jurisdictions in nine appeals bearing different numbers]


Part B : The RTI Act

Standing Committee of the Parliament on RTI Act, 2005:

National Campaign for People’s Right to Information (NCPRI) has made a presentation before the above committee. Some of the items of the said presentation are worth noting to understand present deficiencies of the RTI Act.

In February 2009, the items were reported  :

1. Level of awareness.

2. Use and misuse  of the RTI Act.

Hereunder other  2 items:

Reduction of 20-year period for keeping documents:

A common misunderstanding is that the RTI Act only allows access to information that is less than 20 years old. In fact, the RTI Act does not exempt information on the basis of how old it is.

Currently the law [(So8(3)] only allows three categories of exemptions for information older than 20 years, namely, national security [8(1)(a)], Parliamentary privilege [8(1)(c)], and cabinet papers [8(1)(i)]. Therefore, the law does not restrict access to information, which is more than 20 years old, but actually makes it easier to access older information than current information, which is less then 20 years.

However, this does not mean that departments have to preserve records for perpetuity. Departments are free to destroy records or to transfer them to archives as per their rules and procedures related to the destruction or archiving of records. S. 19(8)(a)(iv) of the RTI Act empowers and obligates the Information Commissions to examine the rules and procedure relating to the destruction of records of any public authority and to give directions as necessary to bring these in tune with the intention of the RTI Act. Therefore, we do not think any change is required.

Impediments, including the Official Secrets Act : Our study suggest that the major impediment to the implementation of  the RTI Act  is the  lack of awareness among the people on how to use the Act and what benefits it could have.

A close second is the mindset of the public authorities and the PIOs to find all possible reasons to deny information. The fact that Information Commissions are not imposing penalties, as mandated by the RTI Act, has made many PIOs think that there are no costs to be paid for denying information on the flimsiest of grounds.

Though the RTI Act specifically provides for the overriding of the Official Secrets Act, when there is a conflict between the two, the fact is that the continued existence of the Official Secrets Act (OSA) does cause a fair amount of confusion among both the applicants and the PIOs. Therefore, it might be the best to repeal the OSA and to put the few important provisions that are required, despite the RTI Act, either into an another existing Act like the National Security Act, or into a new Act.

Voluntary    disclosures:

We believe that the suo motu voluntary disclosure of information is critical to the success of the RTI Act. As already mentioned, this is perhaps the most effective way in which the pressure of RTI applications on government departments can be minimised. Suo motu declarations not only save time, but also provide protection to applicants from the weaker segments of society, who are otherwise targeted by those who have a vested interest in keeping the information secret.

Suo motu declarations also ensure that government is not just reactive to those who seek information but treats all potential applicants equally. For example, our experience shows that where suo motu declarations are not insisted upon, ration shop owners make sure that those few people who file RTI applications are properly serviced and do not have a cause for complaint. However, this leaves out the very large majority, who for one reason or another either do not file applications or cannot file them. On the other hand, where the complete records of a ration shop are put into the public domain suo motu, the ration shop owner cannot anticipate who among the various customers would check the records and point out any discrepancies. Therefore, the ration shop owner is forced to ensure that everyone’s records are accurate.

Our experience is that most public authorities do not bother to be in compliance of S. 4, and certainly do not put out all the information that could be put out, suo motu. Partly this is because the law does not directly mandate any penalty for non-compliance with S. 4. In addition, there are also no incentives for public authorities to make the effort.

It would perhaps be best if an independent agency from within the government, like the National Informatics Centre (NIC) of the Government of India is given the responsibility of creating, maintaining and updating websites and printed material giving the required suo motu information for all ministries and departments of the government. Additionally, the concerned ministries and departments could also be given positive incentives -like perhaps trophies for those who perform best in terms of suo motu disclosures.

It is also important that suo motu disclosures are not just web-based, as many people in India do not have r access to the web. These should be in printed form, through sign-boards, radio, TV, and even by using voice mail in cell phones and innovatively communicating information through songs and theatre (like the MKSS songs that sing out all the provisions of the RTI Act, and explains them in verse !)


Part C : Other News

Justice D. Y. Chandrachud on the RTI Act:

The Right to Information Act has brought about an enormous change in the way we are governed, assured Justice D. Y. Chandrachud of the Bombay High Court at a recent talk on ‘Democracy, Governance and the Rule of Law’. It transpired that people don’t just seek details of case backlog or judges’ salaries, sometimes there are ‘wholly frivolous’ que-ries as well. Recently, an RTI application asked the High Court to reveal how much was spent on flower decoration at a recent function or at the banquet. The Judge, however, said people have a right to ask even irrelevant details. A Court officer is now tracking the floral budget. He might just come out smelling of roses.

BMC to punish the officer  for RTI delay:

The Brihanmumbai Municipal Corporation’s city engineer has issued a show-cause notice to a Public Information Officer – in this case, the Deputy Chief Engineer (Planning and Development) – asking why his increment for next year should not be withheld. The order comes after State Information Commissioner Suresh [oshi levied a fine Rs.25,000 on the officer for not dispatching a Right to Information (RTI) application to the department concerned in time. The State Information Commissioner had also said in his order that the Municipal Commissioner should investigate the delay and take action as necessary.

Answer sheet on examination paper:

The Calcutta High Court allowing transparency in the evaluation system ruled that students had the right to see their answer sheet and educational institutions should allow it. The verdict came on an appeal by Calcutta University against a Single Bench’s order directing it to show a maths answer sheet to Presidency College student Pritam Rooj after he had sought a re-evaluation. Under the current system, students who doubt the marking can seek a revaluation of their answer sheets. But that is done by the examiner and students have to take the examiner’s word for it. Giving its ruling, a Division Bench comprising Chief Justice S. S. Nijjar and Justice Dipankar Datta directed those concerned to act on all such pending applications and show the answer sheets to aggrieved students within a month. The Bench, however, also set a time limit for students to see their answer sheets.

Performance of Information Commissioners of Maharashtra    :


Project  expedited on RTI application:

Today the villagers of Rangpar (a tiny village of 750 people, 25 km from Wankaner in Rajkot district) were happy to see that there is a 2 km road connecting their village to highway. The Gando Baval (babool) shrubs along the roadside have been cleared by the grampanchayat authorities. It took a visually challenged Ratna Ala, 26, to open the eyes of the authorities through the right to information (RTI)Act. At last some development work has been started by grampanchayat in Rajkot. For the last two years Ala has been using RTI to get information on how many schemes the panchayat implemented and how much money they spent. Though he did not get accurate information, it helped the panchayat realise that its inefficiency would be exposed. Ala’s struggle is on, but he is happy that the road has been constructed and the dense shrubs, which were a hindrance to passers-by, are cleared.

Discloser of the  assets  of Commissioners of Information:

Information Commissioners have chosen not to disclose their own assets on the ClC’s website in a development which may cause many to wonder whether the transparency watchdog has trouble following what it preaches to others.

In a candid admission, Chief Information Commissioner Wajahat Habibullah said “All Information Commissioners have declared their assets, but they felt that this information should not be put on the Commission’s website. They did not want it on the ClC website.”

Queried further on why the transparency watchdog was not keen on disclosure of its assets, Habibullah said, “The Commissioners felt that they could put up the information on their personal websites”. Crucially, none of the eight Commissioners have their own website.

Some recent judgments

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Service Tax

1. CENVAT credit:

Whether CENVAT credit is available for air travel for
business?

i) CCE, Ahmedabad vs. Fine Care Biosystems 2009 (16) STR 701
(Tri.-Ahmd.)

Commissioner (Appeals) allowed CENVAT credit of service tax
on outward freight and commission on air tickets. It was held that availability
of CENVAT credit on outward freight is till the place of removal that is the
port from which the goods are loaded for export made on FOB was pronounced in
ABB Ltd vs. Commissioner 2009 (15) S.T.R. 23 (Tribunal-LB) and for CENVAT on air
tickets, it was held that the definition of input service was wide enough to
cover all services used directly or indirectly in the manufacture process, the
CENVAT was admissible. Further, the revenue did not submit any proof that the
travel was for other than business purpose.

Whether credit on mobile
phones is available as they are not installed in the factory premises?



ii) CCE & CUS, Nagpur vs. Ultratech Cement Ltd. 2009 (16) STR 611 (Tri.-Mum)


The company availed CENVAT on the mobile phones provided to
the employees. The adjudicating authority allowed the CENVAT and dropped the
demand. The appeal filed by the Department was also dismissed on merits. Then
the appeal was made to the Tribunal with the contention that mobile phone
service is not cenvatable, as the telephone is not installed in the factory
premises. The Department also referred to the pending appeal filed with the
Bombay High Court (Nagpur Bench) against the Tribunal Order No. S/263-264/C-IV/SMB/07
dated 01-06-2007 (in the case of Manikgrah Cement).

However, the company citied various decisions holding that
CENVAT on mobile services was available. The list interalia included:

(a) CCE, Chennai vs. Showa Engineering Ltd & Another 2009
(14) S.T.R. 840 (Tri)

(b) ITC Ld vs. Commissioner of Customs & Cen tral Excise,
Salem 2009 (14) S.T.R. 847 (Tri) = 2009-TIOL-439-CESTAT-MAD

(c) Finolex Cables vs. Commissioner of Central Excise, Mumbai
;I, 2009 (14) S.T.R. 303 (Tri-Mumbai)

(d) Commissioner of Central Excise vs. Excel Corp Care Ltd.
2008 (12) STR 436 (Guj)

(e) Commissioner of Central Excise (LTU), Chennai vs. Brakes
India Ltd., 2009 (13) S.T.R. 684 (Tri-Chennai)



Citing the Gujarat High Court in case of Commissioner vs.
Excel Corp Care (supra), it was held that CENVAT on mobile phones was allowable
and it was observed that the onus to prove that they were directly or indirectly
used in connection with business activity is on the manufacturer.

Is CENVAT credit available
on colony security service, transport for employees and guest house maintenance?



iii) CCE vs Hindustan Zinc Ltd. 2009 (16) STR 704 (Tri.-Bang)


The company was not allowed input credit for colony security
service, transport service for employees and guest house maintenance service.

It was held that for a company, it was the duty to provide
accommodation to the employees and the colony being the property of the company,
it was obligatory for them to provide security also. Hence it was input service,
the definition under 2(1) of CCR being wide to cover such services. In case of
transportation of employees, it was observed that the services were in relation
to the manufacturing of excisable goods and hence it was also an eligible input
service. Similarly, in the case of maintenance of guest house, it was utilized
for the stay of businessmen during their business visit and hence was in
relation to the business activities was considered eligible input service.

Reliance was placed inter alia on:

(i)
Manikgrah Cement vs. Commissioner of C. Ex. & Customs, Nagpur (2008) 9 S.T.R.
554 (Tri-Mum) and


(ii) Commissioner of C. Ex., Nashik vs. Cable Corporation of
India Ltd. (2008) 12 S.T.R. 598 (Tri-Mum)


Whether CENVAT credit on specified services mentioned in Rule
6(3) on capital goods are limited to 20%?


iv) Idea Cellular Ltd. vs. CCE, Ahmedabad 2009 (16) STR 712 (Tri.-Del)


The appellant is engaged in providing cellular mobile service
to their Clients and while rendering this service, they rendered services of
interconnectivity and permitted use of infrastructure to other telephone
services. The revenue contended these were not actually rendering such services
but it was cost sharing and the same was not defined under section 65(115) and
hence they were exempted services. The Tribunal observed that the services were
subsumed in the services rendered by the appellant to the client and hence they
were not exempt services.

Further according to revenue, the 17 specific services and
the CENVAT on capital goods is also restricted to 20%. It was held that the
Board Circular No. 137/203/2007-CX-4 dated 01-10-07 clearly stated that the rule
does not restrict either the specified services or the credit on the capital
goods and the Departmental Circular is binding, unless a contrary decision is
pronounced either by the High Court or the Honorable Supreme Court.

Part B — Some recent judgments

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Service Tax

I. Supreme Court :


1.1 Burden of proof : ‘reverse burden’ only when one party
to a transaction is a dealer (S. 12 of KGST Act, 1963)



Haleema Zubair v. State of Kerala, 2009 (13) STR 113 (SC)

The appellant a proprietor had two concerns — one having
trading activity and another providing professional services of inspection and
certification of quality. Appeal was filed on being aggrieved with the additions
made by the sales tax assessing authority demanding sales tax on the service.
Income-tax returns, assessment orders and other certificates were produced
before the Appellate authority. The Appellate authority reduced the additional
income from 5% to 2.5%. Appeal was filed with the Sales Tax Appellate Tribunal,
where it was contended that as per S. 5(1)(iii) of KGST Act (the Act),
consideration received for transferring right to use any good for any purpose
was liable for tax. The Revenue claimed that the relevant documents were not
produced before the lower authorities and the burden of proof as to taxability
lay on the assessee as per S. 12 of the Act.

The orders passed by the Tribunal and the High Court did not
consider distinction between assessment orders under the Income-tax Act and
Sales Tax Act inasmuch as the fact that income tax would be levied on the entire
income, whereas sales tax could be levied only on the ‘sale’ and not the other
income which did not result out of ‘sale of goods’.

The condition precedent to the passing of an order was
assessment of sale. Professional service rendered did not constitute sale, which
attracted service tax. Further, the Supreme Court ruled that in general law, the
burden of proof lay with the State and ‘reverse burden’ must be construed having
regard to the nature of the statute. In the Kerala General Sales Tax Law,
however, S. 12 places the burden on the assessee, provided a transaction of
‘sales’ has taken place and at least one party to it is a dealer. Definition of
‘Dealer’ was analysed and it was concluded that the concern providing services
was not a ‘Dealer’ and professional fees were liable for sales tax. Appeal was
allowed by way of a remand to the adjudicating authority for consideration of
materials placed by the appellant.

Cases relied upon :



(i) BSNL and Another v. Union of India and Others,
2006 (2) STR 161 (SC)

(ii) Girdhari Lal Nannelal v. The Sales Tax
Commissioner, M.P. 1996 (3) SCC 701



1.2 Violation of
principle of natural justice :



Kothari Filaments v. Commissioner of CVS (Port), Kolkata
2009 (13) STR 225 (SC)

The appellant, an importer of lithosphere, placed order with
a foreign company for import of lithosphere. On physical verification out of
total quantity of 860 bags, only 189 had lithosphere and the rest contained
yellow coloured substance ‘Tetracycline’.

Appellants contended it to be the mistake of exporter and
attached the acceptance of exporters for the same to prevent penal action. The
Commissioner in his order gave directions for confiscation of goods and imposed
penalty before completion of inquiry. Appeal was filed on the grounds of
violation of principles of natural justice.

The respondent contended that acceptance of mistake by
exporter did not facilitate compliance of principles of natural justice and the
indication of outcome of overseas inquiry had been placed in the show-cause
notice. It was the duty of the appellant to prove the mistake of the exporter
and refute the conclusions of inquiry, the authority had no liability to
disclose their materials.

It was held by the Supreme Court that person charged with
misdeclaration had right to know the basis on which he was penalised, to reply
effectively as considered inter alia in the case of Rajesh Kumar
& Ors. v. Dy. CIT & Ors., 2007 (2) SCC 181 and thus the principle of natural
justice was held to be violated. Setting aside the order, the matter was
remanded to the Commissioner for consideration afresh.

II. High Court :

Co-operative Society in public service

Green Environment Services Co-Op. Society Ltd. v. Union of
India, 2009 (13) STR 250 (Guj.)

The assessee, a co-operative society, provided treatment of
effluents and managed waste generated by industrial units which were members of
society. They contended that the object of the society was in the nature of
public service i.e., for Prevention & Control of Pollution Provisions of
S. 65(25a) of the Finance Act, 1994 excluded services in the nature of public
services. S. 93 of the Finance Act, 1994 grants power to the Central Government
to grant exemption from payment of service tax by notifying in the Official
Gazette. The facts of the case led to the conclusion that the petitioner-society
had been established with the aid of Central & State Governments for treatment
of industrial effluents and waste materials in public interest. The
representation to the Central Government for exemption would be made within 2
weeks and would be placed by the Central Government within two months from that
day. Interim stay for recovery was granted.

III. Tribunal :


3.1 Air travel agent : Adjustment of tax on cancellation of tickets :



CCE, Jalandhar v. Sharma Travel, 2009 (13) STR 150
(Tri.-Del.)

The respondent, an air travel agent adjusted service tax
amount on cancelled air tickets and paid the differential amount. The adjustment
was disallowed and was upheld by the Commissioner (Appeals). The Tribunal
remanded the matter to the Commissioner (Appeals) to decide on merits, evidences
and in consideration of question of limitation.

The Commissioner set aside the demand, but the
Revenue pleaded to invoke doctrine of unjust enrichment. Rejecting the Revenue’s
appeal, the Tribunal confirmed the order of the Commissioner (Appeals).

3.2 Registered society and a charitable trust whether
liable under categories club or association service, convention service and
commercial training and coaching ?



M/s. Ahmedabad Management Association v. Commissioner of
Service Tax, Ahmedabad, 2009 TIOL 214 CESTAT-AHM

AMA was a registered society and a charitable trust under Society’s Registration Act and Bombay Public Trusts Act. AMA filed an appeal against the order of the Commissioner for confirmation of demand of service tax on services provided by it. Penalties u/s.7SA, u/s.76, u/s.77 and u/s.78 had been imposed.

The appellant contended that AMA was a non-profit making institution as amounts earned by it were utilised for fulfilment of its objectives and members were liable for liabilities, but had no share in surplus as it was ploughed back. Thus, it was not a commercial concern. The programmes conducted were exempted from year 2003 as vocational training by the government. Therefore, these services cannot be classified as ‘Commercial Training and Coaching Services’. The services of a club or association came under the tax net w.e.f. 16-6-2005. Exclusion clause excluded services provided by associations in nature of public service. AMA did not have any profit motive and provided public services, which were excluded from taxable services. Convention service was liable to tax when provided by a commercial concern. Convention events were not only for members but also for general public. A Circular dated 1-11-2006 clarified that non-commercial concerns would not fall under it.

The respondent considered the definition of commercial training and coaching centre as per the Act and did not consider training programmes conducted at AMA as vocational training programmes, which were exempted.

As regards club or association services, since they were provided to members, they were taxable and were not covered by exclusion clause, according to the Revenue.

As regards convention services, since they were provided to general public not free of cost but for consideration, they could not be excluded from the tax net, as per the Revenue.

It was held by the Tribunal  that:

a) AMA was not a commercial concern in consideration of its objectives, ploughing back of sur-pluses or no profits in the hands of members. The cases on which decision was relied upon were Great Lakes Institute of Management 2008 (10) STR 202 (Tri.-Chennai) and Institute of Chartered Financial Analysis of India 2008

(TIOL 2036 CESTAT-Bang). AMA was not liable to pay service tax on membership fees received from members of the club, as it was not providing any specific services.

b) The programmes conducted were continuing education programmes and not commercial programmes.

c) Since AMA was not a commercial concern, no service tax could be levied on convention services, and therefore the appeal was allowed.

3.3 CENVAT Credit: Transfer on takeover:

CCE, [aipur v. Hindustan  Coca Cola Beverages Pvt. Ltd., 2009 (13) STR 222 (Tri.-Del.)

The issue in this case was of transfer of credit from one bottling plant to another plant. The Revenue contended that neither the ownership nor the capital goods were transferred.

The Commissioner (Appeals) in his order stated that one bottling plant was taken up by another as registration certificate of the taken over plant was surrendered and the unutilised credit was transferred to the plant which took over. There was no revenue loss and no contravention of any rule. The credit was allowed.

Whether    construction of jetty,  ‘capital goods’ ?

Penalty:  interpretation of statute:

Mundra Port & Special Economic Zone Ltd. v. C.E., Rajkot, 2009 (13) STR. 178 (Tri.-Ahmd.)

The appellants were providers of port services, storage and warehousing services and cargo handling services liable for service tax.

The major issue was availment of credit on steel and cement used for construction of jetty and port building. Attention was drawn by the appellant to the definition of inputs and emphasised on expression ‘used for providing output services’ and reliance was placed on the case of State of Punjab & Another v. British India Corporation Ltd., (AIR 1963 SC 459). It was contended that the operations of port and management serviees was not possible without such construction and only incidental to the main activity should be excluded from the purview of expression ‘used for’, therefore the credit on such inputs should be allowed.

It was held that the jetty did not fall within the definition of capital goods and was constructed by the contractor. Cement and steel were used by the contractor for construction services and considering them ‘not used’ for providing port service, credit was disallowed.

The credit of service tax on mobile phones, CHA and surveyor charges, rent-a-cab and professional fees was allowed and credit on club house fees was disallowed as it was for recreation of employees, and was not for providing output services.

Credit of duty on air conditioners, being ‘capital goods’ as per the Rules, was allowed.

Penalty was set aside as the issue involved bonafide interpretation of law.

Ruchi  Health Foods Ltd. v. CCE, Chennai, 2009 (13) STR 330 (Tri.-Chennai)

The assessee was in the manufacture of refined oil and vanaspati, used CENVAT credit on capital goods viz. acid oil plant used for refining and processing. Credit availed was disputed as acid oil was manufactured in a separate plant where, according to the Revenue, no dutiable goods emerged. Further, credit of duty paid on computers, paints and welding electrodes was also disallowed.

Refinery was part of the factory and the assessee could take credit of duty paid on capital goods and not on exempted or nilrated goods. The impugned goods produced PFAD also, which was cleared on payment of duty. Acid oil was also cleared on payment of duty. Thus, machinery installed in refinery was not exclusively deployed in producing only non-dutiable products. Declarations as per the rules, records, invoices and returns relating to credit had been furnished to the Dept. indicating that PFAD was also an acid oil which was cleared on payment of duty. Likewise, credit on duty on computers, electrodes in view of decision of Jawahar Mills Ltd. v. CCE, Coimbatore, 1999 (108) ELT 47 (Tri.-LB) were allowed. The order itself was set aside and appeal was allowed.

3.4 Can penalty u1s.76 be reduced?

CCE – Rajkot v. Shri BSGK Shashtry, 2009 TIOL 173 CESTAT-AHM

The Commissioner (Appeals) reduced the penalty uj s.76 against which the Revenue filed an appeal and contending that S. 76 was unambiguous and did not provide liberty to reduce penalty and submitted that decision in M/ s. ETA Engineering Ltd. [2006 (3) STR 429 (Tri. LB)] had to be followed.

Various decisions in which authorities used discretion to impose less penalty u/ s.80 of the Finance Act, 1994 submitted by the appellant were considered and rejecting the Revenue’s appeal, extension of S. 80 by the lower authority was upheld.

3.5 Limitation:

Refund: Whether  barred by limitation?

CCE, Pune-III v. M/s. Beharay & Rathi Constructions, 2009 TIOL 178 CESTAT-Mum.

The respondents, being recipient of ‘goods transport agency’ services, thus liable for service tax, availed abatement of 25% instead of 75%, erroneously resulting in excess payment. The refund claim was held to be hit by time bar of S. 11B of Central Excise Act, 1944.

The Commissioner (Appeals) held that tax collected by mistake of law, did not attract S. 11B and cited various case laws in support.

The Tribunal held that among various decisions cited, many were of prior period in which amendment dated 19-9-1991 in S. 11B had not been considered. Therefore, the impugned refund claim filed by the respondents was hit by time bar in consideration of S. 11B.Reliance was placed on Mafatlal Industries Ltd. v. Union of India, 1997 (89) ELT 247 (SC) and Commissioner of Customs v. Aman Electrical Manufacturing Co., 1997 (90) ELT 260 (SC).

Kilburn Engg. Ltd. v. CCE, Vadodara-II, 2009 (13) STR 285 (Tri.-Ahmd.)

The appellants engaged in the manufacture of machinery, who installed, erected and commis-sioned it at customer’s premises and raised separate bill for this. The dispute related to supervision of erection, commissioning of machinery to attract service tax liability under consulting engineering services.

The Commissioner (Appeals) observed that supervision of erection and commissioning required professional knowledge and therefore fell within the scope and ambit of ‘consulting engineering service’ and relied on the case M. N. Dastur, 2002 (140) ELT 341 (Cal.).

The Tribunal relied upon case CCE, Cochin v. BPL Telecom Pvt. Ltd., 2007 (5) STR 349 (Tri. Bang.),
 
M/s. Jyoti Ltd. v. CCE, Vadodara, 2008 (9) STR 373 (Tri. Ahmd.) and held that technical assistance provided by manufacturer of goods could not be held as consulting engineering services.

It also considered that first and second show-cause notices for the same period for the same facts being barred by limitation, relief was allowed.

3.6 Jurisdiction:

CCE, Mumbai v. Central Cable Pvt. Ltd., 2009 (13) STR 328 (Tri.-Mumbai)

An appeal was filed against the order passed by CCE (Appeals), for consideration of legal aspects.

The Commissioner (Appeals) in his order observed that the Assistant Commissioner had no jurisdiction to issue show-cause notice.

The Revenue contended that Circulars on which reliance was placed by the Commissioner (Appeals) were not in force when the matter was adjudicated by original authority and he was empowered by a Circular to issue show-cause notices.

The Tribunal remanded the matter back to the Commissioner (Appeals) for reconsideration.

3.7 Reimbursements – whether taxable? (Also limitation) :

Rolex Logistics Pvt. Ltd. v. CST, Bangalore, 2009 (13) STR 147 (Tri.-Bang)

The appellant engaged in ‘Management Consultancy Service’ took over operations of two proprietary firms, which were not providing management consultancy services. They were accused of suppression of value of taxable services as regards reimbursements claimed by the firms and evasion of service tax for which demand along with interest and penalty was raised.

The appellant contended that show-cause notice was issued based on the information from balance sheet and other books of accounts and therefore suppression could not be alleged.

The Tribunal observed that service tax liability accounted only towards the amount received and not towards reimbursements.

It was further held that there was no suppression of facts with an intention to evade tax, therefore longer period could not be invoked.

Some of the cases relied upon:
(i) Scott Wilson Kirkpatrick (l) Pvt. Ltd. v. CST, 2007(5) STR 118 (T)
(ii) B.S. Refrigeration Ltd. v. eST, 2006 (4) STR 103(T)
(iii) Glaxo Smithkline Pharmaceuticals Ltd. v. CCE, 2006 (3) STR 711 (Tribunal)

ICAI and its Members

1. Finances of ICAI

Audited Accounts of ICAI for the year ended 31-3-2012 have been recently released at the 63rd Annual Meeting held in February, 2013. The summarised position given below will show that the net worth of ICAI as at 31-3-2012 was Rs. 838.77 crore. (including Earmarked Funds of Rs. 162.86 crore). The Net Surplus as per Income & Expenditure Account for the year ending 31-3-2012 was Rs. 182.61 crore.

4.    Our New President and Vice President

On 12-2-2013, Shri Subodh Kumar Agrawal (Kolkatta) is elected as President and Shri K. Raghu (Bangalore) is elected as Vice President of ICAI for the year 2013-14. Our greetings and best wishes to both of them for a successful term of office.

5. EAC Opinion

Accounting for Preliminary and other Pre-operative expenses and Government Grants in Profit and Loss Statement

Facts

A State Government accorded sanction for implementation of the High Speed Rail Link (HSRL) to the International Airport. A Ltd., a wholly owned Government company, was appointed as nodal agency of the State Government for the HSRL project and to play a similar role that it has been playing in the implementation of another International Airport. Further, sanction was also accorded to constitute Special Purpose Vehicle (SPV Ltd.) to implement the project on PPP – BOT basis by inviting Expression of Interest (EOI) and Request for Proposal (RFP). A Ltd. was also authorised to engage the services of another company, B Ltd on assignment basis as project consultants to assist SPV Ltd., in the implementation of this project.

By another Government order, sanction was accorded to release an amount of Rs. 2.50 crore to A Ltd. for utilising the funds to pay consultancy fee to study the impact of City Airport Terminal (CAT) on the traffic and to suggest engineering solution to tackle the traffic problem and project consultancy fee for incorporation of SPV Ltd. and documentation charges/fee for preparation of MOA & AOA of SPV Ltd., Accordingly, A Ltd. incorporated SPV Ltd. on 31st March,2008 with the main objective-to implement HSRL Project to an International Airport under PPP concept. SPV Ltd. initially issued 49,996 shares to A Ltd and 4 shares to nominees of State Government, Thus, it became a subsidiary of A Ltd.

Thereafter, SPV Ltd. prepared its accounts for the period from the date of incorporation to 31st March,2009 i.e. for the first year. It prepared only balance sheet and no profit and loss account or income and expenditure account was prepared as company had not commenced its operations. A note was given that pre-operative/implementation (construction) period expenses till the completion of the project will be capitalised and preliminary expenses would be amortised in five equal installments after commencement of its operation. In the next year i.e. in the financial year 2009/10, the SPV Ltd .prepared its profit and loss account and preliminary expenses and pre-operative expenses were charged including the expenses incurred by A Ltd on behalf of SPV Ltd., in the profit and loss statement.

Query

On these facts, an opinion of EAC was sought, whether the accounting by SPV Ltd. for expenses/ funds which were received by A Ltd. as promoter of SPV Ltd. by preparing the profit and loss account for the financial year 2009/10 is in compliance with the requirements of the Companies Act, 1956 and Accounting Standard issued by ICAI and if not what is the appropriate accounting treatment?

Opinion

The Committee after considering AS-26 was of the view that cost of starting up an activity that includes incorporation expenses, including preliminary expenses incurred by A Ltd. towards incorporation of SPV Ltd., in bringing an enterprise into existence as a separate legal entity should be expensed as no intangible asset or other asset is acquired or created that can be recognised, unless such expenditure is required to be capitalised as part of the cost of a fixed asset as per AS-10 in the books of SPV Ltd.

Further, the Committee was of the view that the funds received from the Government meet the definition of “government grants” as per provisions of AS-12 and should be recognised accordingly. Besides, the Committee was of the view that funds received were both in the nature of grants related to revenue and of the nature of promoters’ contribution. Hence, the funds received for meeting the envisaged obligation of SPV Ltd. should be treated as income to match against the expenses incurred for the period. The funds in the nature of “promoters’ contribution” should be taken to capital reserve as per the requirements of AS 12 and amount received from the Government against the issue of the shares be recognised as share capital.

As regards preparation of profit and loss account before commencement of commercial operations by the SVP Ltd., the Committee noted that as per requirement of section 210 of the Companies Act, 1956, a profit and loss account has to be prepared for each annual general meeting from the date of incorporation of SPV Ltd. Same view has been taken in the circular no. 2/17/64-ER dated 29th January, 1964 issued by the Department of Company Affairs. Hence, the preliminary and other expenses incurred should be expensed in the year of their incurrence. Similarly, the grants which were earned by SPV Ltd. during the period should be recognised as per requirements of AS 12. Therefore, the Committee has taken the view that the profit and loss account should be prepared by SPV Ltd. from the date of incorporation, even before commercial commencement of the project.

Hence, the accounting by SPV. Ltd for expenses/ funds received by A Ltd. while preparing the profit and loss account of the financial year 2009/10 was not correct and was not in compliance with AS 10, AS 26 and AS 12. The expenses/funds received should be accounted for in the profit and loss account of SPV Ltd. of the respective years in which these are incurred/earned.

[Pl. Refer Page nos. 1246 to 1253 of C. A. Journal – February, 2013]

6.  ICAI News
(Note : Page Nos. given below are from C.A. Journal for February, 2013)

(i) Council Elections – 2013
Results of Council Elections held in December, 2012 were declared on 7-1-2013. 22nd Council was constituted effective from 12-2-2013. Out of 1,92,641 voters, 90,228 voters (46.83%) exercised their franchise. Region wise voting percentage was Western 49.81%, Southern 44.07%, Eastern 42.23%, Central 46.14% and Northern 47.45%. (Page – 1171)

(ii) November, 2012, Final Examination Result.
(a) Both groups – 12.97%, (b) Group I – 27.30%, (c) Group II – 21.85%
Rank –   1  Ms. Prema Jaykumar (Mumbai) 75.88%
Rank –   2 Mr. Ashokkumar Indiana (Rajamahendra varam) 75.25%
Rank –   3 Mr. N. Gnansampath (Coimbatore) 74.13% (P. 1173)

(iii)  Members of New Central and Regional Councils
Names of New Central Council and Regional Council members and given on pages 1184/1185.

(iv) New Publications
ICAI has published a book on “Commonly Used Terms in Public Finance & Government Accounting”.
(P. 1326)

(v) ICAI Awards – 2012
ICAI has declared the following Awards to Western Region for 2012
(a)  Best Regional Council – WIRC
(b)  Best Students Association – Western India
(c)  Best Branch (Large Branch) – Baroda, Nagpur    (WIRC) and Ludhiana (NIRC)
(d)  Best Branch (Medium Branch) – Aurangabad (WIRC) and Salem (SIAC)

From the President

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Dear Members,

By the time this issue reaches you, the Finance Bill, 2013 would be out and everyone would be engrossed in discussing and evaluating the implications and changes brought in the Bill, and attending Lectures and Seminars by the experts.

The most important event post-Budget, that almost all professionals look up to, is the talk of Mr. S. E. Dastur on Direct Tax Provisions of the Finance Bill. Year after Year, Mr Dastur from the BCAS platform, addresses the crowd of almost 3500 to 4000 at Yogi Sabhagruha, Dadar (E), and many more watching a live webcast. This year’s talk of Mr Dastur would make a history in BCAS books, as it would be his 25th talk for BCAS. It’s a treat to the mind and ear, to hear Mr Dastur analysing the budget provisions . The members and others in the profession who missed his live talk can watch the same on BCAS Web TV.

The other stalwart in the field of Indirect Taxation, Mr. Vikram Nankani, will address on Indirect Tax Provisions of the Finance Bill, 2013 on 13th of March at IMC.

While you make your analysis and study of the Finance Bill, 2013, we too at BCAS start gearing up and work for it’s most prestigious and acclaimed Publication, BCAS Referencer 2013-2014, which is in its 51st year and would be released in June 2013. At this juncture, let me share that the BCAS Referencer 2012-2013 App is now available for download both on Android and Apple store.

After the presentation of the Budget, once the anxiety is over, every section of the Society talks about the impact of the Budget, who are the beneficiaries and who are the losers. But all discussion ultimately ends with the most sensitive issue and that is Inflation.

Let me illustrate the same with recent reports after the presentation of the Rail Budget on 26th February. Railway Minister Mr Pawan Kumar Bansal has tried to take a small step by linking freight tariffs to oil prices, to make railways viable.

 But, India Inc has expressed concern over the hike in freight rates, which they feel will add to the gloom in an already depressed business environment which may lead to higher inflation. Also, the issues surrounding government spending, and the massive deficit, always brings the topic of inflation to the forefront. The subject of inflation has remained an emotionally charged topic of debate over the last several years.

But I for one always pose before myself and struggle to find answers to a few Questions, like:

What is Inflation, and why is Inflation so widely feared ?
How does Inflation impact one’s life ?
If it’s a major concern, why hasn’t it been tackled systematically ?
Why the Government has failed to curb Inflation ?
Why Reported Inflation seems different than Reality ?
Is Inflation the Endless Farce ?

I would like you all to ponder over the above Questions, in the light of the following thoughts:

We all, while talking about money and the price of goods and services, use the word “inflation” quite regularly. But honestly speaking, few know what it actually means, what it measures and how it is calculated.

We often hear an older person talk about how different things were 40-50 years ago. It only costed five rupees to see a movie. A house only costed about Rs. 100-250 per sq. ft. In the intervening years, prices have risen, sometimes drastically. Seeing a movie in the theatre now costs about Rs. 200-350; and a house costs about Rs 10,000-50,000. From 1973 to now, an Indian pays 48 times for one litre of fuel. That’s inflation.

Many economists argue that a low steady rate of Inflation as opposed to zero or negative rate is good for the economy. They advocate that “Inflation is the grease on the wheels of the economy”.

On the other hand, the common man is least interested in knowing either the WPI/CPI or the calculations thereof. What he wants is a reasonable price and that he is not made to pay a higher price for the same item every next time he goes to market.

What common men or consumers don’t realise is that once a price increases, any future drop in inflation doesn’t have an effect on the earlier price. It just means that we will pay slightly less on the increase going forward.

For me, inflation is one of the catch phrases that’s heard all the time and is an inevitable threat to our material wellbeing.

Considering the present scenario and the political instability in our country, and the fear of future inflations hanging in the air, it would not be wrong to say that the future Law of Inflation would be : Whatever goes up will go up more & more.

I would end with a Quote by Milton Friedman:

“Inflation is Taxation without Legislation”.

With Warm Regards,
Yours truly,
Deepak R. Shah

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PART B: RTI Act, 2005

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National Campaign for people’s Right to Information (NCPRI) held 4th RTI National Convention for four days (15th February to 18th February) at Hyderabad.

 NCPRI was formed in 1996 and functions as an AOP till today. Prominent Individuals running the same are Ms. Aruna Roy, Mr. Nikhil Dey, Ms. Anjali Bharadwaj and others. NCPRI has played a key role in drafting the Central RTI Act of 2005. It holds convention every two years. On 15th and 16th February, the subjects of discussion were the future course of NCPRI-structure, decision making process, role of NCPRI etc. It then produced a summary, part of it reads:

Objectives

The National Campaign for people’s Right to Information (NCPRI) seeks to empower the people and to deepen democracy, through promoting people’s right to information. By using this right, it seeks to fight corruption and social apathy, to make governments and other institutions and agencies having an impact on public welfare, more humane and accountable to the people and to promote efficiency and frugality.

Values

The NCPRI is committed to support participatory just, secular and humane democracy.

Methods and Activities

The NCPRI endeavours to constantly engage and interact with the state and with other institutions and agencies. It campaigns for the enactment and use of right to information law that is effective and accessible to all. It also supports people’s efforts at developing the ability and motivation to use the right to information for addressing individual and social problems. It works at disseminating the RTI law and encourages and supports the development of materials related to transparency and governance, the raising of awareness about the fundamental value of information, the conduct of research and the setting up of information clearing houses. It seeks to further the cause of transparency by adopting other direct and indirect methods, including the filing of information requests, the fighting of legal cases and the holding of public hearing.

It also decided on its structure and also to democratise the same, details will be posted on www. bcasonline.org and www.pcgt.org.

On 17th February, delegates were divided in to 15 groups to discuss 15 topics for its activities and to draft Hyderabad Declaration on The Right to Information (Pattern similar to BCAS-RRC)

On 18th February, the final Hyderabad Declaration of the RTI was adopted at a public meeting which was also addressed by Mr. Vajahat Habbibullah (the first Central Chief Information Commissioner)

 On the afternoon of 18th February, there was a visit to a NGO specialising on social audit to understand the process of social audit, a subject of great importance to build accountability and contain corruption.
It was a rewarding and satisfactory convention.

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PART D: Good Governance

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Excerpts from the article of Makarand Paranjape:

Makarand Paranjape reported in Sunday Times of 3-2-2013:

“From this brief overview of the facts it is clear that the republic is not as intolerant as it is badly governed. This is a crisis not of tolerance but of governance. The political establishment had failed to uphold the Constitution and the rights that are guaranteed under it. Laws meant to safeguard the weak are often manipulated or twisted to bully or browbeat those who dare to speak inconvenient truths. The powers vacated or abused by an ineffective executive are only partially compensated for by an interventionist judiciary, an over-active press, or a popular uprising like Anna Hazare’s.”

Excerpts from the article of William Bissel reported in Sunday Times of 3-2-2013

“As Thomas Kuhn has said in The Structure of Scientific Revolutions, we are facing a challenge that is the result of paradigm shift where the evidence of the failure of our concepts of governance stare us in the face. And yet, in the avalanche of evidence that speaks of this failure, the system remains paralysed applying praradigms of governance that will no longer suffice.

So, how does the class of 2014 begin to put in place the foundations of a new system of governance?

I believe that such a system will have to be built on a new paradigm of measuring overall wellbeing using tools that allow government to create a holistic view of what the elements of wellbeing are: access to security (specially for women), clean air, safe drinking water, reliable sewage facilities, access to a good nutrition for all, schools that teach, colleges that skill.”

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PART C: Information on & Around

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CBI goes to the Delhi High Court:

Vide provisions of section 24, RTI Act does not apply to the intelligence and security organisations specified in the Second Schedule.

The Central Board of Investigation (CBI) has been added in the Second Schedule to the RTI Act w.e.f. 29-6-2011.

The matter was taken to the Madras High Court pleading that the CBI is not the intelligence and security organisation. But, it was lost.

Mr. C.J. Karira made an application to the CBI asking it to furnish information relating to the status of sanction for prosecution against government officials facing allegations of corruption between 2007 to 2011. Same was denied. He filed an appeal to CIC. He pointed out that the information which the CBI declined to reveal on his RTI plea has been disclosed by the ministry of personnel in a number of responses to Parliament members. Hence, it is disclosable under Proviso to s/s. 1 to section 24.

The 1st Proviso to section 24 reads as under: Provided that the information pertaining to the allegations of corruption and human rights violations shall not be excluded under this sub-section.

The Commission in its decision directed the CBI to disclose the status of sanction for prosecution against government officials facing allegations of corruption between 2007 to 2011.

The CBI has now approached the Delhi High Court seeking exemption under the RTI Act from disclosing information held by it on allegations of corruption. The Delhi High Court has stayed the CIC Order and has fixed the matter on 3rd April for further hearing.

Mumbai Police

On an average, 120 Mumbai police personnel have died while on duty every year since 2002, with 98% of them succumbing to various illnesses, including cardiac arrest, according to an RTI reply. Other causes of death included illnesses such as diabetes, hypertension and heart-related problems, among others.

 “Due to long duty hours, a policemen cannot plan their days. They don’t get time to exercise. Moreover, when policemen are deployed at any place, they have to eat the food available there, which may be unhealthy,” Additional Commissioner of police (Crime) Niket Kaushik said.

Vice–Chancellor of Mumbai University:

A query filed by Mr. Anil Galgali an RTI activist under the RTI Act, revealed that the Mumbai University (MU) hired senior advocates to fight the cases challenging the VC’s job. The university had hired senior advocates, Rafique A. Dada – known for fighting tricky cases – Naushad Engineer and Sagar Talekar.

MU’s finance and accounts PIO A. R. Jadhav said the university had paid Rs. 4,10,900 to the three lawyers. MU legal adviser Ajit Karwande received a letter from advocate R. A. Rodrigus on 11th July, 2011, with bills that needed to be settled: professional charges of Dada (Rs. 3,30,900), Engineer (Rs. 45,000) and Talekar (Rs. 35,000).

Irrelevant Information:

Rejecting an RTI application filed by a Kandivali resident seeking information of the last 10 years on the appointment, transfer and retirement of Government employees in Maharashtra, Ratnakar Gaikwad (Chief SIC) wrote in the order:

“Applicants should not ask for detailed and irrelevant information as public information officers (PIOs), besides performing their statutory duties, are also engaged in the task of providing information to the people. In such circumstances, it would be appropriate if such information is sought which would bring in transparency and accountability in administration, halt corruption and is in public interest.”

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Lecture Meeting

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Risk & Rewards of Practice – A Guide for New and Young CAs in Practice, 23rd January 2013, at the Indian Merchants’ ChamberMr. Nilesh S. Vikamsey, Chartered Accountant, presented an informative analysis of Risks & Rewards of Practice and covered the following areas:

• Present scenario of CAs in practice and in the industry along with relative advantages and disadvantages

• Traditional and emerging areas of practice

• Major challenges in practice: Economic, Regulatory, Technological, Human Resources and Personal

• Strategies and thought process for practice: specialisation, positioning, right sizing,

• Problems of remuneration/fees and how to overcome the same.

• Clients’ rating/profiling

• Requisites of successful practice

• Growth strategies through networking, merger and demerger, practice in corporate form.

The audience included many young and newly qualified Chartered Accountants who benefitted tremendously. The webcast of the meeting is made available on BCAS Web TV to the subscribers.

Future without Fear, 11the February 2013, at the Rama Watumall Auditorium, K.C College under the auspices of Amita Memorial Trust

At this 17th Lecture Meeting organised under the auspices of Amita Memorial Trust jointly with the Chamber of Tax Consultants, Sister Bramha Kumari Shivani addressed the overflowing audience about why and how we should not fear about future and how to better equip ourselves to face the future without fear by doing good deeds.

Noted film actor Mr. Suresh Oberoi also addressed the audience and narrated his own life transforming experience. Shri Pradeep Shah welcomed the learned speaker and refreshed his daughter Amita’s memories. Ms. Nandita Parekh expressed a very well deserved vote of thanks and heartfelt gratitude to Sister Shivani. The webcast of the meeting is made available free on BCAS Web TV for everyone.

Recent Developments in SEBI Regulations, 6th February 2013, at the Indian Merchants’ Chambers

Mr. Somasekhar Sundareshan, Advocate, presented a masterly analysis of recent developments in SEBI Regulations such as draft Scheme of Arrangement involving listed company to require SEBI’s approval, investment by the Employee Welfare Trusts, SEBI’s new reporting requirement to monitor audit qualifications and revised consent settlement norms among others. The webcast of the meeting is made available on BCAS Web TV for subscribers.

Other Programmes

Seminar on Transfer Pricing, 19th January 2013, at the Indian Merchants’ Chamber

The International Taxation Committee organised this Seminar where the following learned faculties explained various aspects of transfer pricing specifically applicable to domestic transaction: The seminar elicited response from over 200 participants, both from the Industry & the Profession.



Seminar on Certification under the Income tax Act, 1961, 25th January 2013, at the Indian Merchants’ Chamber

This Seminar organised by the Taxation Committee, was attended by nearly 150 participants where the following speakers shared their knowledge on the topics allotted: The participants gained immensely from the wealth of knowledge and experience shared by the learned faculties.

Workshop on Risk Management, 7th February 2013, at Hotel Orchid, Mumbai

The Accounting & Auditing Committee organised this workshop where the following learned faculty explained Basics of Risk Management and Challenges in Implementing Risk Management, with focus on small and medium sized firms implementing risk management activities amongst their clients followed by a Panel Discussion on Risk Management in Indian context:

• Dr. Dale F. Cooper, Member of the Risk Management Committee of Council of the University of New South Wales

• Mr. Ravindra Rao, Chartered Accountant

• Mr. Huzefa Unwalla, Chartered Accountant

 • Mr. Deepjee Singhal, Chartered Accountant

The participants gained immensely from the knowledge and experience shared by the learned faculties.

Seminar on the Companies Bill, 2012, 30th January 2013, at the Indian Merchants’ Chamber

The Accounting and Auditing Committee organised this seminar where the following learned faculties dealt with the topics allotted to them:


The participants benefitted immensely from the detailed analysis of various provisions of the new Companies Bill, 2012 by the learned faculties.

Real Estate Summit, 1st and 2nd February 2013, at J. W. Marriott, Mumbai

The BCAS jointly with the IMC organised unique industry specific Real Estate Summit covering various aspects of Real Estate Business and Investment covering following topics addressed by learned speakers:

A publication titled “Real Estate Laws” authored by Naushad Panjwani, Chartered Accountant and Ameet Hariani, Advocate, was also released at the Summit.

The content and coverage of topics and the overall arrangement at the Summit were appreciated by the participants. The event also received coverage by leading newspapers and media.

Workshop on ‘Personal Victory’ for CA Students, 10th February 2013, at the Society’s Office

The Human Resources Committee jointly with Amita Memorial Trust organised this workshop for CA Students where Mr. M. K. Ramanujam explained the following concepts:

• Goal setting

• Understanding responsibilities

• Working within the circle of influence, i.e. qualities, abilities and capacities

• Time management

The Student participants found the training at this workshop as a life changing experience. 11th Leadership Training Camp, 8th and 9th February 2013, at the Rambhau Mhalgi Prabodhini, Bhayander

The Human Resources Committee had organised this Residential camp which was based on the theme ‘Living in Harmony’. The faculty, Mr. M. K. Ramanujam shared his experience and knowledge and related the same to the concepts of:

• Flourishing

• Living

• Serving

• Understanding meaning of life

• Accomplishing and maintaining positive relations

The objective of the camp was well achieved as it helped the participants to improve their ability to bring more joy and presence to their daily lives.

Third Intensive Study Course on Transfer Pricing, 9th February 2013 onwards, at the Indian Merchants’ Chamber

The course organised by the International Taxation Committee of the Society was inaugurated by the Chairman of the Committee, Mr. Kishor Karia, Chartered Accountant. Vice President, Mr. Naushad Panjwani, Chartered Accountant welcomed the 111 participants in his address and congratulated them for having enrolled for this course spread over 10 Saturdays. Mr. T.P. Ostwal, Chartered Accountant delivered the first session covering an Overview of Transfer Pricing.

2nd Advance Computer Training Program for Senior Chartered Accountants, 22nd January 2013 onwards, at the HR College

The course spread over 12 days with 35 hours of training, jointly organised with HR College of Commerce & Economics, was inaugurated by the Chairman of the Infotech & 4i Committee, Mr. Ameet Patel, Chartered Accountant. President of the Society, Mr. Deepak Shah, Chartered Accountant welcomed the participants and explained the objective of the course. Professor Ruzbeh Raja, delivered the first session covering an Overview on Excel to the participants.

Letters

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Sir,
It was a genuine privilege to read January 2012 edition of BCA Journal. Your sincere and honest efforts to provide us with updated knowledge along with some of the best articles, stories, etc. are really worth appreciating.

Especially I liked the stories compiled by CA Raman Jokhakar. Those stories are really helpful in our professional and social life as well. My special thanks to you Raman Sir.

Thanks and regards.

— Vaibhav Mungashe,
C. A. Student, Pune.

Sir,
Re: Delay in introduction of Safe Harbour Rules The Finance Minister introduced section 92CB by the Finance (No. 2) Act, 2009 w.e.f. 1-4-2009, empowering the Board to make Safe Harbour Rules for determination of arm’s-length price. ‘Safe Harbour’ means Circumstances in which Income-tax authorities will accept the transfer price declared by the assessee. The enabling section 92CB was introduced after persistent demand by the taxpayers, particularly by the foreign companies.

One is, therefore, surprised that even after a lapse of three years, the relevant rules have not been notified. If this is not a sign of policy paralysis, then what constitutes policy paralysis? Of course, our ruling politicians and bureaucrats are allergic to use of the term and recently the PM openly chided the business community for using the same.

Further, though the transfer pricing provisions were introduced w.e.f. 1-4-2002, the CBDT has not provided enough guidelines about its implementation even after ten years. In western countries, such as Australia, New Zealand, Canada, UK, USA etc., their tax departments have put up hundreds of pages of guidelines for the taxpayers. Absence thereof in India is puzzling, to say the least; perhaps the Revenue Officers are either themselves not clear about the implications of the Law which they are implementing or they do not want to give up their discretionary powers!!! It is high time that the Tax Department provides clear guidelines on implementation of Transfer Pricing Law and formulate Safe Harbour Rules are introduced. Indian Transfer Pricing Officers are one of the most aggressive in the world, leading to mind boggling adjustments and litigation which helps nobody (except legal and tax professionals) and is driving away the Foreign Direct Investment though the high officials won’t accept the same.

—T. K. Singhal
Chartered Accountant
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From published accounts

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Section B:
• Reclassification of loans between current and non-current
• Accounting of interest on certain borrowings on cash basis as per Court order
• Adoption of hedge accounting principles in respect of commodity derivative contracts
• Exceptional Items

Essar Oil Ltd (31-3-2013)

From Notes to Financial Statements

Notes below Schedule 7: Long Term Borrowings: The classification of loans between current liabilities and non-current liabilities continues based on repayment schedule under respective agreements as no loans have been recalled due to noncompliance of conditions under any of the loan agreements. The non-compliance of conditions under the loan agreements are primarily arising out of the order of the Hon’ble Supreme Court dated 17th January, 2012 (refer note 36). This is in accordance with the guidance issued by the Institute of Chartered Accountants of India on Revised Schedule VI to the Companies Act, 1956.

Repayment and other terms:

a) Secured redeemable non–convertible debentures (‘NCDs’) of Rs. 105/- each consists of:

13,868,050 (Previous year 16,918.250) – 12.50% NCDs of Rs. 105/- each amounting to Rs. 145.61 crore (Previous year Rs. 177.64 crore).

7,00,000 (Previous year 7,00,000) – 12.50% NCDs, of Rs. 100/- each on private placement basis partly paid up at Rs. 93.86 per debenture amounting to Rs. 6.57 crore (Previous year Rs. 6.57 crore).

During the year, the Company refinanced its Rupee borrowings with one of its existing lenders into an External Commercial Borrowing (ECB). This resulted in conversion of debentures having face value of Rs. 32.03 crore also into the ECD loan. Further, as per the common Loan Agreement (‘the CLA’) entered with lenders post exit from the Corporate Debt Restructuring (CDR) Scheme, the Company has agreed to pay interest on a monthly/quarterly basis, on debentures held by the erstwhile CDR lenders at a floating rate linked to the base rate of the respective bank prevailing on 8th August, 2012, with effect from 1st January, 2012, resulting in the interest rates ranging from 12.32% p.a. to 12.75% p.a. The Company is also in the process of sending offer letters to the remaining debentures holders (i.e., other than lenders) given them, inter alia, an option for prepayment of debentures along with accumulated interest in full. The principal amount of debentures is otherwise payable from December 2014 to June 2018 and accumulated interest from December 2014 to March 2027, with an option to prepay certain portion of interest at a discounted rate. As an alternative, these debenture holders can opt for revising the terms and conditions applicable to debentures in line with the terms contained in the CLA.

The Hon’ble High Court of Gujarat has, in response to the Company’s petition, ruled vide its orders dated 4th August, 2006 and 11th August, 2006 that the interest on certain categories of debentures should be accounted on cash basis. In accordance with the said petition/ order, funded/accrued interest liabilities amounting to Rs. 417.72 crore (Previous year Rs. 428.24 crore) as at 31st March, 2013 have not been accounted for. This amount carries interest rate ranging from fixed rate of 5% to a floating rate of 12.75% and is repayable from December 2014 to March 2027.

c) During the year, the Company exited Corporate Debt Restructuring Scheme resulting in termination of the MRA dated 17th December, 2004 and entered into a CLA dated 25th March, 2013 with the lenders for the loan facilities which were hitherto being governed by the MRA. The MRA gave an option, subject to consent of lenders, to the Company to prepay certain funded interest loans (the FS loans) of Rs. 2,471.63 crore on or before 24th April, 2012 without interest. The FS loan has not been prepaid before 24th April, 2012 and is now governed by the CLA.

In order to give accounting effect to reflect substance of the transaction, the FS loan was, since inception, measured by the Company in accordance with the principles of IAS 39, Financial Instruments, Recognition and Measurement, in the absence of specific guidance in Indian GAAP to cover the specific situation. In continuance of the above said principle and applying the principle of Accounting Standard AS 30, Financial Instruments, Recognition and Measurement, the FS loan has, upon signing of the CLA, been remeasured since inception, considering present value of cash flows inclusive of interest. Accordingly, the gross liability of Rs. 3,163.84 crore of the FS loans and funded interest thereon as at 31st March, 2013 (comprising of Rs. 2,126.36 crore to the banks and Rs. 1,037.48 crore to the financial institutions) have been measured at Rs. 1,833.84 crore (comprising of Rs. 1,234.34 crore to the banks and Rs. 599.50 crore to the financial institutions). Consequently, borrowing cost of Rs. 536.71 crore attributable to construction of the Refinery Project based on such remeasurement has been capitalised as part of cost of Fixed Assets and balance borrowing cost of Rs. 110.94 crore has been recognised in the statement of profit and loss.

The FS Loans of Rs. 2,471.63 crore is repayable in various installments from March 2021 to March 2026 and the Funded Interest thereon as at 31st March, 2013 amounting to Rs. 692.19 crore is repayable in 40 equal quarterly installments beginning 30th June, 2013.

A funded interest loan of Rs. 206.88 crore (previous year Rs. 206.88 crore) is payable in a single bullet payment in 2031 and is continued to be measured in accordance with the aforementioned principles at Rs. 34.95 crore (Previous year Rs. 31.67 crore).

Note below ‘Other Current / Non Current Assets’

Rs. 2,177.82 crore receivable from Essar House Limited (EHL) being the amount paid under the defeasment agreement of the sales tax liability covered by the scheme (refer note 36). The Company has agreed to recover these dues in eight equal quarterly installments along with interest, coinciding with the installment facility made available by the Hon’ble Supreme Court to the Company for repayment of the Gujarat Sales Tax dues. To secure this amount further, the Company is in the process of obtaining an additional guarantee from the parent company of EHL.

Note below ‘Revenue from Operations’

During the previous year, the Company deferred payment of sales tax/VAT liability amounting to Rs. 1,507.01 crore for the period 1st April, 2011 to 31st December, 2011 and defeased the same to a related party at its present value amounting to Rs. 528.42 crore. Sales tax/VAT amounting to Rs. 1,387.36 crore shown above as deduction from ‘Revenue from operations (gross)’ includes the defeased value of sales tax/Vat liability of Rs. 582.42 crore as per the defeasance agreement pursuant to which the assignee has undertaken to discharge the sales tax/VAT liability on the due dates. Pursuant to the Supreme Court Order dated 17th January, 2012, the Company subsequently reversed the entire amount of income recognised as an exceptional item (refer note 36).

Note on Hedge Accounting

During the year, the Company adopted hedge accounting principles of AS 30 – Financial Instruments and Derivatives for accounting of certain commodity hedges. Accordingly, Rs. 104.90 crore (gain) has been carried over to cash flow hedge reserve as of 31st March, 2013 pertaining to highly probable forecast of sales proceeds. If hedge accounting principles of AS 30 had not been adopted for the year ended 31st March, 2013, sales would have been higher by Rs. 18.48 crore, consumption of raw materials would have been lower by Rs. 5.69 crore, profit after tax would have been higher by Rs. 24.17 crore and receivables would have been lower by Rs. 80.73 crore.

The Hon’ble Supreme Court of India had  vide its order dated 17th January, 2012 set aside the order of the Hon’ble High Court of Gujarat dated 22nd April,     2008     which     had     earlier     confirmed     the Company’s eligibility to the Sales tax incentive Scheme (‘the scheme’) and accordingly the Company had reversed the net defeased income (net) of Rs. 778.25 crore recognised during 1st April, 2011 to 31st December, 2011 as exceptional items during     the     financial     year     2011-12.     Rs.     83.39     crore represents interest payable by the company on sales tax liability arising out of the Supreme Court order dated 13th September, 2012.

From Auditor’s Report
(a)        Note     7(ii)(c)     to     the     financial     statements     detailing the recognition and measurement of the borrowings by a Common Loan Agreement which were hitherto covered by the Master Restructuring Agreement as per the accounting policy consistently followed by the Company;     and     Note     34     to     the     financial     statements detailing the adoption of hedge accounting
principles in respect of commodity derivative contracts, as set out in Accounting Standards (AS) 30, Financial instruments: Recognition and Measurement,     in     absence     of     specific     guidance    under the Accounting Standards referred to in s/s. (3C) of section 211 of the Act.

(b)  Note 7(ii)(c) to the financial statements describing the fact about accounting of interest on certain categories of debentures on a cash basis as per the Court order.

(c)    Note     19     [footnote     (ii)]    to     the    financial    statement    regarding receivable of Rs. 2, 177.82 crore from Essar House Limited and the management plans of securing the dues as explained therein.

Direct Taxes

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Explanatory Notes to the Provisions of the Finance Act, 2013 – CIRCULAR No. 3/2014 [F.NO.142/24/2013-TPL], dated 24-01-2014

The CBDT has issued a press release dated 30-01-2014 to keep in abeyance the change in the procedure for PAN allotment, which was introduced vide Circular No. 11 dated 16-01-2014. In the meantime, the old procedure of PAN application and allotment shall continue.

Relaxation of time limit for filing ITR-V – CIRCULAR No. 4/2014 [F.NO.225/198/2013-ITA. II], dated 10-02-2014

The due date for filing ITR-V form for Assessment years 2009-10, 2010-11 and 2011-12 for returns e-filed within the time allowed u/s. 139 and having refund claims is extended upto 31-03-2014

Clarification regarding disallowance of expenses u/s. 14A of the Act – CIRCULAR No. 5/2014 [F.NO.225/182/2013-ITA. II], dated 11-02-2014

CBDT has clarified that disallowance u/s. 14A shall be attracted in even if the assessee has not earned any exempt income in that particular year.

Clarification regarding scope of additional income tax on distributed income u/s. 115R of the Act – CIRCULAR No. 6/2014 [F.NO.225/182/2013-ITA. II], dated 11-02-2014

CBDT has clarified that receipts by way of redemption/ repurchase of mutual fund units of allotment of bonus units are not subject to levy of additional income tax u/s. 115R (2) of the Act.

Finance Bill 2014, introduced in the Lok Sabha on 17-02-2014

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Light elements

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KYC — know your customer is the buzzword in banking sector and elsewhere. In good old days we often read the quote ‘Customer is God’ by Mahatma Gandhi. Under the changed circumstances this quote seems to be redundant with the introduction of ‘Know your customer’ formality. It makes the customer feel that he is no more ‘God’ as per Bapuji’s view. Maybe now the customer is viewed as a devil or a suspect. This is what my friend Herambha Shastri once remarked. However he did not stop there, he encroached into idiosyncrasies of our ‘clients’ giving us bread (applicable to small firms), butter (applicable to medium-size firms) and cheese (applicable to Big Four).

“My dear friend, we also need to do KYC. We have clients of different hues. Clients just flirting with law, law-abiding clients, paying clients, non-paying clients, organised clients, unorganised clients, close relatives as clients, seasonal clients, one-time clients, perpetual clients, local clients, outstation clients, international (MNC) clients, etc. Well, we deal with them day and night! Are you surprised? Check your mobile call log — received calls — the last call at 11.30 p.m. What a generosity we show to them!

At times it so happens that you are attending a funeral of a near and dear one and you receive call from your client. Either to impress or out of compulsion, you answer the call. Despite informing the client that you are at crematorium, he continues: “Sir, first may the soul rest in peace. (Great etiquette indeed!) Please, one second Sir. Can I invest my retirement proceeds in the name of my wife (as if she were his Mumtaz) in a fixed deposit, right now I am in the bank. What should I do? Tomorrow it’s a bank holiday.” You are stumped.

Sometimes you are at a traffic signal and your mobile starts ringing, you identify the person calling you. Oh! A new client or a star client. The moment you answer the call you are spotted by the traffic police hiding in the corner. And your client on the line is asking you how to avoid disallowance u/s.40(A)(3) for cash payment.

My dear friends, if you are in holiday mood and forget to switch off your mobile, clients are bound to play spoil sport. Your family members get irritated. And obviously some urgent matter comes up and you cut short your holiday.

You can’t avoid meeting relatives at family functions. The moment they come to know that you are a C.A., distant relatives become close relatives. Being close relatives they don’t spare you, they feel that you are available 24×7 (note that this is also true with other non-relative clients). Most importantly, you are advising them for free. At times, out of ‘Aatithi Devo Bhav’ ethos you are forced to ask them to join for breakfast, lunch or dinner or a cup of tea. Because consultation takes place at your residence.

Mind you, most of the clients are playing the ‘hideand- seek’ game with you as far as their financial transactions are concerned. When you make enquiries (obviously in client’s interest) in the process of reconciling his investments and income, initially he is very tentative, the moment you talk about ‘penalties and prosecution’ provisions under the Income-tax Act, he reveals something of your interest. You have to play the role of “devil’s advocate” constantly. Devil means the Income Tax officer. Keep in mind, at times your client will not hesitate to share with you his secret love affairs, but not his financial affairs.

Your clients are always ahead you! I am making this statement with full consciousness and experience. Situation number one: They do everything they have in mind to reap the ‘business’ opportunity and ask us to cram it into the ‘legal frame’. So what is left for you is ‘window dressing’. They have their own definition of ‘commercial expediency’. They happen to be at point of no return and you don’t want to lose your client, you keep scratching your head.

Situation number two: They are always influenced by print, electronic media TV/Internet, lectures, seminars, and their personal network. They pose ‘tax planning’ questions to us based on the so-called ‘tax expertise’ they gather from their sources, particularly TV programmes dealing with ‘how to manage your tax matters’ with on-the-spot question — answer segment where eminent tax experts air their views. You get floored by their queries.

So is the case with public awareness campaign by the Income-tax Department, particularly announcement of advance tax due dates. For example, once the 15th June advance tax due date for corporate assessees popped up on the TV screen non-corporate assessees including salaried employees make it a point to confirm from the horse’s mouth meaning ‘you’, whether they are liable to pay any advance tax. The reason for this anxiety of your client, the advertisement comes with a string “if you fail to pay advance tax you attract penalty and prosecution”. Poor taxpayers.

Sometimes your client tells you how his friend or travel acquaintance (from his personal network) has claimed a particular deduction or exemption. You have no choice but to follow the wishes of your client.

Be aware once you start endorsing your client’s views you may feel that you are just rendering ‘courier services’.

Some clients are ‘dashing and daredevil’ clients, they have their own connections with the Incometax Department right from the peon to the Chief Commissioner. So they ask you to do as they say, rest they undertake to ‘manage’.

This is how your clients are always ahead of you. But when you demand certain information, explanations, record and documents he eschews it and air myriad excuses till the time you fire him.

‘Second opinion’ is another fad in the taxpayers community purportedly as an abundant precaution. This opinion ‘poll’ travels from one expert to another till the opinion is to client’s satisfaction. This happens because you give a ‘devil’s opinion’ — opinion against the assessee’s opinion. Some-times the client has it before he approaches you, and then he shrewdly corners you or tests your knowledge on the given issue. But I tell you it is always safe to have ‘second opinion’ to calm down the suspicious clients. This second opinion is also sought when the client invents a new scheme of ‘tax planning’.

I would end my KYC analysis with two more issues.

First, clients at large think tax compliances, particularly dues dates are for you to bother. So you have sleepless nights, blood pressure (high or low) diabetes, etc.

Second, most of the clients are forgetful about your professional charges, but are very particular about getting the work done. Professional charges are always ‘past’ overdue. Either the clients find the fees too high or they are facing financial crunch in the business. In fact, we extend maximum credit period on the earth. Unfortunately, unlike physical goods we cannot repossess services rendered. If you insist for payment of fees/charges they instantly switch over to another professional. So you have to be very patient.

So my dear friend, Do you Know Your Client?

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ICAI and its members

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1. Disciplinary cases
It is reported that the Disciplinary Committee has given its decision and awarded punishment in the cases of Shri Srinivas Talluri, partner of M/s. Price-Waterhouse & Co., and Shri Srinivas Vadlamani, the former CFO of Satyam Computers. It is also reported that the Committee has held Shri Srinivas Talluri guilty of gross negligence in the performance of his duties as auditor and his membership is cancelled for life and a penalty of Rs.5 lac is imposed. Similarly, in the case of Shri Srinivas Vadlamani the Committee has barred him from attesting financial statements for life and also levied a penalty of Rs.5 lac.

2. EAC Opinion Accounting treatment of success fee paid to the financial advisors

Facts
A government company registered under the Companies Act 1956, is a wholly-owned subsidiary of listed government company. The shares of the company are not listed with any stock exchange. The company is engaged in activities relating to exploration and production of oil and gas. The company is holding participating interest (PI) in various oil and gas blocks. The company along with another company ‘V’ has acquired company ‘A’ in joint venture. Company ‘B’ is 100% subsidiary of company ‘A’, which holds the PI in oil and gas blocks in Brazil.

The company appointed financial advisors to carry out: (i) financial due diligence, (ii) develop a detailed financial model and other methodologies to determine the transaction value, (iii) analyse various risks associated with the projects, (iv) valuation of company/project, (v) assisting in appointment of technical, legal and tax consultants, (vi) listing out various financial options available to the company, and (vii) preparing the bidding strategy to acquire the proposed equity interest or participating interest by the seller.

For this purpose, the fees payable was a fixed fee of US $ 2,50,000; if for any reason the transaction does not consummate and a success fee of 0.70% of the bid price, payable on successful closure of the transaction. The company has pointed out that the fixed fees shall not be payable if engagement is commenced, but the financial advisors are unable to continue or complete the transaction for reasons attributable to them. Notwithstanding this, payment of fixed fees shall become due and payable only after 90 days from the date of signing of the agreement with them.

Thereafter, the financial advisors submitted the report along with the presentation and the same was deliberated upon by the company and company ‘V’. After the internal deliberations the strategy meeting between the company and company ‘V’ for acquiring company ‘B’ was held wherein it was decided to bid for the various basins held by company ‘B’. An amount of Rs.2,40,95,418, (being 0.70% of bid price of US $ 82.5 million) after TDS was paid, to the financial advisors against the bill of the financial due diligence, etc.

Query
The company has treated the above success fees as revenue expenditure in the books of the company. Whether the aforesaid treatment is correct? If not, then what is the correct accounting treatment?

Opinion
The EAC noted that the underlying assets (PI) are not in the books of the company. The expenditure on account of success fees was incurred at the bidding process stage before the formation/ incorporation of company ‘A’. The success fee has relation to bidding process for PI and has no relation to the acquisition of equity shares in company ‘A’. Hence, the company has incurred the expenditure on fee to financial advisors for a commercial advantage which is to be availed through its joint venture company ‘A’, in whose books, the investment in company ‘B’ would appear. After considering paragraphs 28, 29 and 32 of Accounting Standard (AS) 13, ‘Accounting for Investment’ the committee took the view that in the present case the expenditure on fee paid to financial advisors cannot be included in the ‘cost of Investment’ at the time of initial recognition. Such expenditure also does not become part of carrying amount of the investment in the shares of company ‘A’ as the investment is to be carried at cost, with only diminution to be recognised under certain circumstances. Further, the committee noted that the term ‘asset’ has been defined in the Framework for the Preparation and Presentation of Financial Statements, issued by the Institute of Chartered Accountants of India as “a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise”. Therefore, the committee is of the view that expenditure on fixed fee and success fee does not result into a resource control by the company and accordingly, it cannot be capitalised as an asset.

In view of the above, the expenditure on ‘fixed fee’ and ‘success fee’ incurred by the company does not meet the definition of an asset and should be expensed in the statement of profit and loss. Therefore, the treatment given by the company in its books of account is correct.

(Refer page Nos. 1202 to 1204 of C.A. Journal, February 2012) 3.

Results of Final C.A. Examination — Nov. 2011

Results of the above examination were declared in January, 2012. Analysis of the results of examinations held in last two years are as under.

4. Campus placement February-March, 2012 ICAI has organised campus placement programme for the newly qualified Chartered Accountants during February-March, 2012, at 17 centres. Detailed announcement about this programme is available

at www.cmii.icai.org. The places and dates are as under. The newly qualified members can take advantage of this facility at their respective cities.

(i) Baroda, Chandigarh, Indore, Kanpur and Nagpur 22-23 February, 2012

(ii) Bhuvaneshwar, Coimbatore and Ernakulam 23-24 February, 2012

(iii) Ahmedabad, Jaipur and Pune 27-29 February, 2012

(iv) Chennai, Mumbai and New Delhi 26-31 March, 2012

(v) Banglore, Hyderabad and Kolkata 28-31 March, 2012 (Refer page 1279 of C.A. Journal for February, 2012)

5. ICAI News

(Note :Page Nos. given below are from C.A. Journal for February, 2012)

(i) Vision 2030

ICAI has released ‘ICAI Vision 2030’ at its Annual Function held on 11-2-2012. Copies can be obtained from ICAI office. (Page 1142)

(ii) Health Insurance from members and students

ICAI has tied up with New India Assurance Co. Ltd. for launching a special scheme for members and C.A. students. Details are available at www. icai.org.in (Page 1142).

iii)  New branches of ICAI 
Following new branches have been opened by ICAI.
(a)  Kannur branch  (SIRC)
(b)  Shivkashi branch (SIRC) (Page 1286)

 (iv)  New branch buildings of ICAI
Following new buildings have been inaugurated at branches of ICAI (SIRC):
  (a)  Coimbatore
  (b)  Nellore
  (c)  Madurai (Page 1142)

(v)    Revision of fees payable to Expert Advisory Committee (EAC)

EAC of ICAI is giving opinions on Accounting and Audit Issues to members and others. At present, a fee of Rs.25,000 is required to be paid to EAC for each opinion. This fee is now enhanced to Rs.50,000 w.e.f. 10-1-2012 in cases which relate to an enterprise whose equity capital or debt securities are listed on the stock exchanges. Further, the increased fees are also payable in cases where the enterprise is having annual turnover exceeding Rs.50 crore based on the accounts of the year ending on a date immediately preceding the date of sending the query. In all other cases a fee of Rs.25,000 will be payable.

FROM THE PRESIDENT

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Telangana – India’s 29th state – February 2014
Mumbai – India’s 51st state – January 2050

Dear members of BCAS family,

Bhavya Bharat:
It is said, by many analysists, that India will overtake USA in 2050 to become the second largest economy. I believe that. Many sceptics do not believe that we can achieve this on GDP basis. But I am sure many will agree that we may have more states than USA by 2050 with Mumbai becoming the 51st state of India.

Back Stroke:
There is intellectual outrage at the formation of Telangana all across; of course, outside Telangana, that is. One stroke of line across the map and conflicting emotions are displayed. Some shed tears for fear of loss of livelihood, while on the other side, a gush of happiness upon hope of progress and prosperity. Not to forget the show of indignation by us who are nowhere affected by this stroke. This is also being referred to as a master stroke by Sonia Gandhi. Will this stroke strike down the chances of Congress being stricken down by the opposition in this ensuing election? Time will tell. Going by precedence, it did not help Atal Bihari Vajpayee to come back to power when in 2000 he struck not one, not two but three strokes to bring into existence Chhatisgarh, Jharkhand and Uttarakhand.

Bharat Nirmaan:
India must be one of those rare countries whose boundaries, both external and internal has been constantly changing.

A quick recap:
It can be debated as to who amongst Ashoka, Akbar and the British gave shape to India the way it was prepartition. I have just finished reading Empire of the Moghals by Alex Rutherford and as per the author, Akbar ruled over the largest empire bordering from Samarkhand in the North, Persia in the West, Bengal in the East and Deccan in the South. Much of the North and West was lost by the Moghals very early. Pakistan and what is now called Bangladesh was separated when we attained Independence. In all, 562 princely states joined to form India. The external boundaries as we see today were crystalised as late as in 1962 when the former French and Portuguese colonies in India were incorporated into the Republic as the union territories of Puducherry (Pondicherry), Dadra and Nagar Haveli, Goa, Daman and Diu.

Bharat Punarnirmaan:
Then started the internal reformation. Bombay split into Maharashtra and Gujarat in 1960. Haryana and Himachal Pradesh were carved out from Punjab in 1966. Add to that the conversion of Union territories like Sikkim and Goa to States.

Bharat Bhugol Bhavishya:
But this is not the end. There is a proposal lying with the central government to create Avadh Pradesh, Bundelkhand, Paschim Pradesh, and Purvanchal from Uttar Pradesh. Agitations are on for a separate Bodoland, Gorkhaland and Vidharbh.

And surely, Telangana will not be the last state. Brace yourselves for many more. And there’s nothing wrong in it. All the new states mentioned above have prospered post-separation. There seems to be merit in it. Governing large states is difficult, particularly with ethnic differences and neglect of large populations. America has 50 states while it’s population is just a quarter of ours. China has 34 provinces for a population marginally larger than ours. Thus, if a segment of populace feels alienated and neglected and feel their prosperity is possible, then who are we to object? Statehood is okay, separatism is a no-no.

Bharat Vibhajan:
There are separatist movements in J&K. The Akali movement is still active from North America. Will India disintegrate like the USSR? I am confident that will never happen. We are all bound together by a strong nationalist bond. Just like our joint families are becoming nuclear families, so is our country going through the same phase.

Andhra Bhojan Bhavishya:
Coming back to Telangana and Andhra Pradesh, being a foodie and with Andhra cuisine being one of my top favourites, I am awaiting clarity on whether my favourite dishes like palakura pappu, thotakura, iguru and Kodi Guntur will now be called Andhra dishes or Telangana dishes? Will know when I next go to my favourite jaunt at Andhra Bhavan in Delhi for Andhra Meals. I am sorry for sounding selfish but that’s the only interest I have in this episode.

My father studied a different map in school, I studied another while my daughter studied yet another. I am sure my grandchildren will study a completely new map.

Here’s wishing everyone happiness and love.

With Warm Regards

Naushad A. Panjwani

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FROM THE PRESIDENT

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Dear Members, As I write this communication the assembly elections are in their final phase. The results are expected on 6th March, and they will have an impact on the future of the UPA government. The election results will be followed by another mega event, the presentation of the Union Budget on 16th March, for the year 2012- 13. While it is true that much of the hype that surrounds a budget presentation is created by the media, its importance cannot be ignored. While there are many more ways in which a government can bring in policy reform, a budget is an indication of the thinking of the government.

At the Society we make a pre-budget representation to the government with regard to the direct and indirect tax proposals. At the beginning of the financial year it was felt that the Direct Tax code (DTC) would be passed and consequently there would be no significant amendments in the Finance Bill as far as direct taxes are concerned. The DTC now having been postponed by at least one year, some of the proposals contained therein may well find a place in the budget. The DTC proposals have already been extensively debated and the thinking of the finance minister in that regard will be known on 16th March. In this communication I am taking the opportunity to air my thoughts about what I would expect from the finance minister of this great country in regard to proposals other than those related to taxes.

The primary aspect of worry is the burgeoning fiscal deficit. The government needs to control and restrict its administrative expenditure severely. In terms of quantum the saving may not be significant but it sends a message to the public that the government is serious about controlling the deficit and keeping it within the range of budgeted figures. In the bureaucracy there is urgent need to cut flab. Successive pay commissions have made government emoluments attractive, but none of them have addressed the problem of the waning efficiency.

Subsidies, including fertiliser subsidies form a substantial part of the government’s outlay. I believe that it is time that the government did a serious rethink on its strategies in regard to subsidy. Most of the subsidies have turned out to be inefficient in as much as they are a drain on the exchequer and yet do not reach the intended beneficiaries. The existing system needs to be phased out and a system whereby monetary assistance flows directly to beneficiary must be put in place. The UID system may facilitate this process. This would reduce the levels of corruption and make subsidies effective.

Education and health need to get a substantially increased allocation on par with infrastructure. We constantly talk of India’s demographic advantage. That advantage can be converted into well distributed economic prosperity only if quality education is made affordable. The government has legislated on the Right to Education, but it must not remain only on records. Public health systems in most states are in disarray. In this regard Central assistance is the need particularly in the smaller states. These are state subjects but the necessary impetus must be given by the Centre.

On account of political compulsions many big-ticket reforms have been put on the back burner. Irrespective of the assembly results, the government must bite the bullet. The disinvestment process has suffered substantially on account of inaction by the Centre. I am a firm believer in the maxim that the government has no business to be in business. Most of the Public sector undertakings need enterprising leadership. The government must unlock its capital invested in these undertakings so that the funds for infrastructural development are easily available.

And finally the budget must give agriculture its due share. This does not mean giving a loan waiver as the government did some time ago. What it really means is a sustained reform process for modernisation of agriculture. While growth in the agricultural sector as well as its contribution to the GDP is not satisfactory, the importance of agriculture can never be understated. The land use for primary agriculture is constantly reducing. This has implications well beyond short term economics. A nation should be reasonably independent in respect of its food requirements if it is to retain its stature in global politics. This is one aspect that the finance minister needs to consider.

Apart from the above, another aspect that is in a way unrelated to the budgetary exercise is government accounting. Business is expected to follow global accounting norms and the latest accounting standards. In fact, a lot of the problems in regard to government finance and government expenditure would be in the public domain if it is shifted from the cash method of accounting to accrual. However, this will be the subject matter of a separate communication.

For the time being let me wish readers a Happy Holi, and let us hope that in my next piece I can welcome a path-breaking budget.

Honest disagreement is often a good sign of progress.

— Mahatma Gandhi

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Company Law

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1. Formation of High Level Committee For Corporate Social Responsibility:
The
Ministry of Corporate Affairs has vide General Circular No 1/2015 dated
3rd February 2015 constituted a High Level Committee to suggest
Measures for improved monitoring and implementation of Corporate Social
responsibility under Shri Anil Baijal.

2. Extension of Time for Filing Form for Appointment of Cost Auditor

The
Ministry of Corporate Affairs has vide General Circular no 2/2015 dated
11th February 2015 extended the time for filing of Notice of
Appointment of the Cost Auditor in Form CRA 2 without late fee till 31st
March 2015.

3. Companies (Indian Accounting Standards) Rules 2015:

The
Ministry of Corporate Affairs has vide Notification dated 16th February
2015 notified that Companies ( Indian Accounting Standards ) Rules 2015
which shall come into force by 1st April 2015 and will be applicable
for Companies specified therein for the year ending 31.03.2016.

4. Companies (Removal of Difficulties) Order, 2015 :

The Ministry of Corporate Affairs has passed the Companies (Removal of Difficulties) Order 2015 on 13th February 2015.

1 Section 2(85) which provides for the definition of “small Company” shall now read”

‘‘small company’’ means a company, other than a public company,—
(i)
paid-up share capital of which does not exceed fifty lakh rupees or
such higher amount as may be prescribed which shall not be more than
five crore rupees; and
(ii) turnover of which as per its last profit
and loss account does not exceed two crore rupees or such higher amount
as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to— (A) a holding
company or a subsidiary company; (B) a company registered under section
8; or (C) a company or body corporate governed by any Special Act;

2
Section 186 which pertains to Loan and Invest ment by Company, the
following is to be added in sub section (11) in clause (b), after item
(iii):

“(iv) made by a banking company or an insurance company
or a housing finance company, making acquisition of securities in the
ordinary course of its business.

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From Published Accounts

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Accounting for multiple schemes of amalgamation/arrangement and acquisition:

Sesa Sterlite Ltd . (31-3-2014)

From Notes to Accounts
The Scheme of Amalgamation and Arrangement (the “Scheme-1”) amongst Sterlite Energy Limited (‘SEL’), Sterlite Industries (India) Limited (‘Sterlite’), Vedanta Aluminium Limited (‘VAL’), Madras Aluminium Company Limited (‘Malco’) and the Company was sanctioned by the High Court of Judicature of Bombay at Goa vide its order dated April 3, 2013 and the Honourable High Court of Madras vide its order dated July 25, 2013. The Scheme became effective for Sterlite and Malco on August 17, 2013; and for SEL and VAL the scheme became effective on August 19, 2013.

The Honourable Supreme Court of Mauritius by an order dated August 24, 2012 and the Honourable High Court of Judicature of Bombay at Goa by an Order dated April 03, 2013, approved the Scheme of Amalgamation (the “Scheme-2”) of Ekaterina (holding 70.5% shareholding in Vedanta Aluminum Limited), with the Company. The effective date of amalgamation is August 17, 2013.

The summary of the appointed dates and effective dates of the schemes are as follows:

The above schemes have been given effect to in the financial statements for the year ended March 31, 2014.

I. Amalgamation of SEL with the Company:
(a) SEL was engaged in the generation of commercial power in the State of Odisha and was a wholly owned subsidiary of erstwhile Sterlite.

(b) In accordance with the Scheme-1:
(i) SEL stands dissolved without winding up with effect from January 01, 2011, on the effective date.

(ii) A ll assets, debts and liabilities of SEL have been deemed transferred to and vested in the Company with effect from January 01, 2011.

(iii) SEL carried on the business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(iv) In accordance with the Scheme-1, upon Chapter 2 of the Scheme-1, becoming effective, SEL became a wholly owned subsidiary of SGL, and accordingly no shares were issued and allotted by SGL.

(c) The amalgamation has been accounted under the ‘Pooling of Interests’ method as envisaged in the Accounting Standard (AS) – 14 on Accounting for amalgamations specified in the Companies (Accounting Standard) Rules 2006, whereby:

(i) In accordance with the Scheme-1, the assets, liabilities and reserves (excluding share premium) of SEL as at January 01, 2011 along with subsequent additions/ deletions up to March 31, 2013 have been recorded at their book values. Further, equity share capital, share premium account of SEL, and investments in the equity shares of SEL has been eliminated and resultant balance amount of Rs. 2.48 crore has been debited to General Reserve of the Company.

(ii) The profits of SEL from appointed date January 01, 2011 to March 31, 2013 have been transferred to the Surplus in Statement of Profit and Loss of the Company. The operations of SEL during the year have been accounted for in the current year’s Statement of Profit and Loss of SEL as at April 01, 2013 Rs. 194.02 crore (after the alignment of accounting policies of SEL in line with SGL accounting policies) has been included in Surplus in Statement of Profit and Loss of the Company.

(iii) In terms of the Scheme-1 inter-company balance (payable, receivables, loans, advances, etc.) between SEL and the Company (after giving effect of Sterlite amalgamation) as at appointed date have been cancelled.

II. Amalgamation of Sterlite with the Company:
(a) Sterlite was engaged in the copper smelting business:

(b) In accordance with the Scheme-1 :
(i) Sterlite stands dissolved without winding up with effect from April 01, 2011, on the effective date.

(ii) 1,656,179,625 number of equity shares have been issued to the equity shareholders of Sterlite, except for equity shares of Sterlite held by MALCO and excluding shares against which Ads were issued in the ratio of 3 equity shares of face value of Rs.1/- each in the Company for every 5 equity shares held in Sterlite. 72,173,625 ADS of the Company representing 288,694,500 equity shares of the Company have been issued in the ratio of 3 ADS of the Company for every 5 ADS of Sterlite.

(iii) A ll assets, debts and liabilities of Sterlite have been deemed transferred to and vested in the Company with effect from April 01, 2011.

(iv) Sterlite carried on the business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(c) T he amalgamation has been accounted under the ‘Pooling of Interests’ method as envisaged in the Accounting Standard [AS] – 14 on Accounting for Amalgamations specified in the Companies [Accounting Standard] Rules 2006, whereby:

(i) In accordance with the Scheme – 1, the assets, liabilities and reserves of Sterlite as at April 01, 2011 along with subsequent addition/deletion up to March 31, 2013 have been recorded at their book values. The difference between the value of total assets, total liabilities and the face value of share capital allotted to the shareholders of Sterlite amounting to Rs. 134,45 crore and credit balance in the General Reserve of Rs. 2,770.29 crore has been credited to the General Reserve in accordance with the Scheme – 1.

(ii) In terms of the Scheme – 1, inter-company balances [payables, receivables, loans, advances, etc.] between VAL – Aluminium and the Company [after giving effect of Sterlite amalgamation] as at appointed date have been canceled.

(iii) The profits of Sterlite from the appointed date April -1, 2011 to March 31, 2013 have been transferred to Surplus in the Statement of Profit and Loss of the Company. The operations of Sterlite during the year have been accounted for in the current year’s Statement of Profit and Loss of the Company. The balance in Surplus in Statement of Profit and Loss of Sterlite as at April 01, 2013, Rs. 3,069.67 crore [after the alignment of the accounting policies of Sterlite in line with SGL accounting policies] has been included in Surplus in Statement of Profit and Loss of the Company.

III. Aluminum Division of Vedanta Aluminium Limited [“VAL -Aluminium”] with the Company:

(a) Vedanta Aluminium Limited was engaged in the production of aluminium with associated captive power plants. “VAL-aluminium” consisting of 0.5 mtpa aluminium smelter at Jharsuguda and 1.0 mtpa alumina refinery at Lanjigarh in the State of Odisha.

(b) In accordance with the Scheme -1:
(i) VAL-Aluminium demerged from VAL and merged with the Company from appointed date April 01, 2011.

 (ii) N o shares have been issued and allotted by the Company to Vedanta Aluminium Limited for the demerger of the VAL-Aluminium and merger with the Company.

(iii) All assets, debts and liabilities of VALAluminium have been deemed transferred to and vested in the Company with effect from April 01, 2011.

(iv) Vedanta Aluminium Limited carried on VALAluminium business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(i) In accordance with the Scheme-1, the assets and liabilities of VAL-Aluminium as at April 01, 2011 along with subsequent addition/deletion up to March 31, 2013 have been recorded at their book values. Further, in accordance with the Scheme-1, excess of book values of assets over liabilities of VAL-Aluminium business amounting to Rs. 532.46 crore has been credited to General Reserve of the Company.

(iii)    In terms of the Scheme-1 inter-company balance (payable, receivables, loans, advances, etc.) between SEL and the Company (after giving effect of Sterlite amalgamation) as at appointed date have been cancelled.

ii.    amalgamation of sterlite with the company:
(a)    Sterlite was engaged in the copper smelting business:

(b)    In accordance with the Scheme-1 :
(i)    Sterlite  stands  dissolved  without   winding  up with effect from April 01, 2011, on the effective date.

(ii)    1,656,179,625 number of equity shares have been issued to the equity shareholders of Sterlite, except for equity shares of Sterlite held by maLCo and excluding shares against which Ads were issued in the ratio of 3 equity shares of  face  value  of  Rs.1/-  each  in  the  Company for every 5 equity shares held in Sterlite. 72,173,625 adS of the Company representing 288,694,500 equity shares of the Company have been issued in the ratio of 3 adS of the Company for every 5 ADS of Sterlite.

(iii)    All assets, debts and liabilities of Sterlite have been deemed transferred to and vested in the Company with effect from april 01, 2011.

(iv)    Sterlite carried on the business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(c)    The  amalgamation  has  been  accounted  under the ‘Pooling of interests’ method as envisaged in the accounting Standard [AS] – 14 on accounting for Amalgamations specified in the Companies [Accounting Standard] Rules 2006, whereby:

(i)    In accordance with the Scheme – 1, the assets, liabilities and reserves of Sterlite as at april 01, 2011 along with subsequent addition/deletion up to march 31, 2013 have been recorded at their   book   values.   The   difference   between the value of total assets, total liabilities and  the face value of share capital allotted to the shareholders   of   Sterlite   amounting   to   Rs. 134,45 crore and credit balance in the General reserve   of   Rs.   2,770.29   crore   has   been credited to the General reserve in accordance with the Scheme – 1.

(ii)    In terms of the Scheme – 1, inter-company balances [payables, receivables, loans, advances, etc.] between VAL – Aluminium  and the Company [after giving effect of Sterlite amalgamation] as at appointed date have been canceled.

(iii)    The profits of Sterlite from the appointed date april -1, 2011 to march 31, 2013 have been transferred to Surplus in the Statement of Profit and  Loss  of  the  Company. The  operations  of Sterlite during the year have been accounted for in the current year’s Statement of Profit and Loss of the Company.  the balance in Surplus in Statement of Profit and Loss of Sterlite as at april 01, 2013, Rs. 3,069.67 crore [after the alignment of the accounting policies of Sterlite in line with SGL accounting policies] has been included in Surplus in Statement of Profit and Loss of the Company.

iii.    Aluminum Division of vedanta aluminium limited    [“val-aluminium”]    with    the company:

(a)    Vedanta Aluminium Limited was engaged in the production of aluminium with associated captive power plants. “VAL-aluminium” consisting of 0.5 mtpa aluminium smelter at jharsuguda and 1.0 mtpa alumina refinery at Lanjigarh in the State of Odisha.

(b)    In accordance with the Scheme -1:

(i)    VAL-Aluminium demerged from VAL and merged with the Company from appointed date april 01, 2011.

(ii)    no shares have been issued and allotted by the Company to Vedanta Aluminium Limited for the demerger of the VAL-Aluminium and merger with the Company.

(iii)    All assets, debts and liabilities of VAL- aluminium have been deemed transferred to and vested in the Company with effect from april 01, 2011.

(iv)    Vedanta Aluminium Limited carried on VAL- aluminium business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme -1.

(i)    In accordance with the Scheme-1, the assets and liabilities of VAL-Aluminium as at April 01, 2011 along with subsequent addition/deletion up to march 31, 2013 have been recorded at their book values. Further, in accordance with the Scheme-1, excess of book values of assets over liabilities of VAL-Aluminium business amounting   to   rs.   532.46   crore   has   been credited to General reserve of the Company.

(ii)    In terms of the Scheme, inter-company balance (payables, receivable, loans, advances, etc.) between VAL-Aluminium and the Company (after giving effect of Sterlite amalgamation) as at appointed date have been cancelled.

(iii)    The losses of VAL-Aluminium during the period april 01, 2011 to march 31, 2013 have been transferred to Surplus in Statement of Profit and  Loss  of  the  Company.    The  operations of VAL-Aluminium during the year have been accounted for in the current year’s Statement of Profit and Loss of the Company. The debit balance of Surplus in Statement of Profit and Loss of VAL-Aluminum as of April 01,2013 rs.  4,389.54  crore  (after  the  alignment  of accounting policies  of  VAL-Aluminium  in  line with SGL accounting policies) has been included in Surplus in Statement of Profit and Loss of the Company.

(iv)    In accordance with the Scheme-1, post the vesting of VAL-Aluminium business with the Company, shortfall of book values of assets over the liabilities of the aluminium business after adjusting the carrying value of equity share investment in VAL as on the effective date not representing by the net assets value of VAL as on effective date amounting to Rs. 1,471.63 crore has been debited to General reserve of the Company.

iv.    Residual business of The Madras aluminium    company    limited    (‘Malco- residual’) with the company:

(a)    The madras aluminium Company Limited (malco) was engaged in the production of aluminium and commercial power generation business in the State of Tamilnadu.

(b)    In accordance with the Scheme-1:

(i)    In accordance with the Scheme-1, the power business of malco consisting of 100 MW coal based power plant was sold at a consideration of Rs. 150.00 crore to VAL with appointed date of april 01, 2012.  Residual business of malco merged with the Company from appointed date august 17, 2013 and malco ceased to exist.

(ii)    78,724,989 number of equity shares have been issued to the equity shareholders of Malco in the ratio of 7 equity shares of face value of Re. 1/- each in the Company for every 10 equity shares held in malco.

(iii)    All assets, liabilities and reserves of malco- residual business were deemed  transferred  to and vested in the Company with effect from august 17, 2013.

(c)    The amalgamation has been accounted under the ‘Pooling of interests’ method as envisaged in the accounting Standards (AS) – 14  on accounting for Amalgamations specified in the Companies (Accounting Standard) Rules 2006, whereby:

(i)        The assets, liabilities and reserves of malco- residual (except investment in the equity shares of Sterlite) as at appointed date have been recorded at their respective carrying values in the books of the Company. in accordance with the Scheme-1, the difference between the value of total assets (excluding investment in Sterlite), total liabilities, reserves and the face value of share capital allotted to the shareholders of malco Rs. 14.62 crore and credit balance in the General reserve of  Rs. 231.24 crore has been credited to General reserve of the Company.

(ii)        In terms of the Scheme-1, as at appointed date the investment in the equity shares of Sterlite in the books of malco-residual has been cancelled and  resultant  balance  amount  of  Rs.  312.26 crore has been debited to General reserve of the Company.

(iii)    In terms of the Scheme-1, inter-company balances (payables, receivables, loans, advances, etc.) between malco-residual and the Company as at the appointed date have been cancelled.

(iv)    The balance in Surplus in Statement of Profit and Loss of malco-residual as at august 17, 2013 rs. 351.06 crore (after the alignment of accounting policies of malco-residual business in line with SGL accounting policies) has been included in Surplus in Statement of Profit and Loss of the Company.

(d)    Upon the Scheme becoming effective and with effect from the appointed date, the assets and liabilities of  the  power  business  undertaking,  as appearing in the books of malco at the close  of business on the day preceding the appointed date as vested in the Company, are recorded by Vedanta Aluminium Company (“VAL”) at a value derived by apportioning the cash consideration paid amongst all assets and liabilities pertaining to the power business of the undertaking.  In terms thereof, VAL has recorded assets of Rs. 216.98 crore and liabilities of Rs. 66.98 crore by apportioning  the  cash  consideration  of  Rs.  150 crore as stated above.

Subsequently, the name of VAL has been changed to malco energy Limited w.e.f. october 24, 2013.

v.    Amalgamation    of    Ekaterina    limited (ekaterina) with the company:

(a)    The   honourable   high   Court   of   judicature   of Bombay at Goa, by an order dated april 03, 2013, and the honourable Supreme Court of mauritius by an order dated august 24, 2012, approved the Scheme of amalgamation (the “Scheme-2”) of Ekaterina (holding 70.5% shareholding in Vedanta aluminium Limited), with the Company effective from  the  appointed  date  april  01,  2012.    the effective date of amalgamation is august 17, 2013.

(b)    In accordance with the Scheme-2 :
(i)    72,034,334 number of equity shares were issued to the equity shareholders of Ekaterina in the ratio of 1 equity shares of face value Re. 1 each in the Company for every 25 shares held in ekaterina.

(ii)    In accordance with the Scheme-1, the assets, liabilities and reserves of ekaterina as at april 01, 2012 along with subsequent addition/ deletion up to march 31, 2013 have been recorded in the books of the Company at their respective book values.

(iii)    Ekaterina stands dissolved without winding up with effect from april 01, 2012.

(iv)    Ekaterina carried on the business for and behalf of the Company for the period from the appointed date to the effective date, in trust as per the Scheme-2.

(c)    The  amalgamation  has  been  accounted  under the ‘Pooling of interests’ method as envisaged in the accounting Standard (aS) – 14 on accounting for Amalgamations specified in the Companies (Accounting Standard) Rules 2006, whereby:

(i)    The assets, liabilities and reserves of ekaterina as at appointed date have been recorded at their respective carrying values in the books   of the Company. in accordance with the Scheme-2, difference between total assets, total liabilities, reserves and the face of value shares capital allotted to the shareholders of EKTL amounting to Rs. 917.48 crore credited to General reserve of the Company.

(ii)    In terms of the Scheme-2 inter-company balances (payables, receivables, loans, advances, etc.) between ekaterina and the Company as at the appointed date have been cancelled.

VI.    Consequent to the above and utilising the carry forward unabsorbed tax losses of VAL-Aluminium and SeL, the Company has recognised a current tax credit of Rs. 1,755.09 crore during the year.

VII.    Subsequent to the effectiveness of the Scheme, a Special Leave petition challenging the order of the high  Court  of  judicature  of  Bombay  at  Goa  has been filed by the income tax department, a creditor and a shareholder have challenged the Scheme in the  high  Court of  madras.   The said  petitions  are pending for admission/hearing.

VIII.    Subsequent to the effectiveness of the Scheme,   all the subsidiaries of erstwhile Sterlite industries (india)  Limited  have  become  subsidiaries  of   the Company. Consequent to the above, such subsidiaries have been consolidated in the Group Consolidated Financial Statements from april 1, 2013  and  an  amount  of  Rs.  47,151.30  crore  has been accounted under reserves & Surplus [refer note no 6) as an adjustment “Pursuant to Scheme of Amalgamation”, which includes the adjustments to the General Reserves and the adjustments to the General reserves and Surplus in Consolidated Statement of Profit and Loss, as referred to in Notes I to V above.

34.    Acquistion of val’s power business through slump sale:

By way of Slump sale agreement dated august 19, 2013 between VAL and the Company, the power business consisting of 1,215 mW (9X135MW) captive power plants situated at jharsuguda and 300MW co-generation facility (90mW operational and 210mW under development) at Lanjigarh together with the assets and liabilities, has been purchased by the Company on a going concern basis at its carrying value at a consideration of ` 2,893 Crore.

35.    Pursuant to the share purchase agreement, dated February 25, 2012 between Bloom Fountain Limited (‘BFL’), a wholly owned subsidiary of the Company and Vedanta Resources Holdings Limited (‘VRHL’), BFL acquired 38.68% shareholding in Cairn India Limited and associated debts of $5,998 million by way of acquisition of Twin Star Energy Holdings Limited (‘tehL’), for a nominal cash consideration  of $1. Consequently w.e.f. August 26, 2013, TEHL, twin Star mauritius holdings Limited (‘tmhL’) and Cairn india Limited (including all its subsidiaries) have become subsidiaries of the Company.

The effect of acquisition of TEHL, TMHL and Cairn India Limited on the financial position and results as included in the consolidated financial statements for the year ended March 31, 2014 are given below:

From the auditors’ report
EMPHASIS OF MATTER

We draw attention to Note 31 to the financial statements which describes the Scheme of amalgamation and Arrangement and its effects given in the financial statements.

Our opinion is not qualified in respect of this matter.

From the President

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Dear members,

Over the last few decades, we have witnessed tremendous technological developments that have drastically improved life for mankind. The next few decades are likely to be a period of profound scientific change. The inventions once confined to the realm of science fiction are coming into common usage. A German Sociologist and Media Researcher Volker Grassmuck says, “The ultimate promise of technology is to make us masters of a world that we command by the push of a button.”

With the rise of computing and digital technology, the automation process started crossing boundaries with automation of even mental work. Authors Erik Brynjolfsson and Andrew McAfee in their book “The Second Machine Age” make a case that humanity has reached an “inflection point” for the digital age. The computers and other digital advances are doing for mental power, what the steam engine and its descendants did for muscle power. The Artificial Intelligence (AI) and machine learning technology have enabled computers to make decisions, recognise speech and visualise in 3D. The Internet of Things (IoT) that connects devices, systems, and services and goes beyond machine-to-machine communications is spreading quickly and is expected to connect nearly 26 billion devices by 2020.

A case in point is the self-driving car being developed by several companies. You could get in the car, go to sleep and wake up at your destination. With Google, Tesla, Uber and now even Apple joining the race, autonomous vehicles are predicted to be commercially available by 2020.

Such technological developments result in unintended consequences. Brynjolfsson and McAfee argue that while automation of the physical work still requires humans to be the control system, it is less clear what the role of humans would remain with automation of the control system itself. Such developments could lead to technological unemployment as there may not be another big sector of the economy to absorb all these workers.

Stephen Hawking, a well-known scientist, has warned that AI could one day spell the end for mankind and that humanity faces an uncertain future as technology learns to think for itself and adapt to its environment.

In his book “The Rise of the Robots”, the Silicon Valley-based futurist Martin Ford forecasts significant unemployment and rising inequality unless radical changes are made. In the past, technology created as many jobs as it destroyed and made people better off by making goods and services cheaper. However, this premise is no longer valid. Martin argues that increasingly the humans are becoming less and less useful compared to machines. As an example, he cites New York-based start-up Work Fusion, which sells software to businesses to automate big projects that would previously have been done by office workers. The software divides the job into micro-tasks, automates the repetitive bit then recruits freelance workers through crowdfunding platforms for tasks that require thinking. The software not only manages these freelance workers, it monitors what they are doing, but also learns from them. Over time, the software can automate more and more. As freelance workers do their jobs, they are, in effect, training the software to replace them.

A survey of nearly 2,000 experts carried out by the Pew Research Centre, reveals over half of them believe the technology will have displaced more jobs than it creates by 2025. In a recent study conducted in the UK, Michael Osborne and Carl Frey from Oxford University conclude that 35% of UK jobs were at high risk of disappearing in 10 to 20 years because of automation.

The experts foresee the job categories most at risk include cab drivers as well as neurosurgeons as driverless cars would cause lesser accidents. It will also include professionals such as taxation experts and accountants where the job involves manipulating a formulaic information. Disruptive innovation does not take kindly to entrenched competitors, and autonomous car could severely impact not only the major automakers but also ancillary and allied industries.

Is it that we are extrapolating too far based on examples such as self-driving cars? Is mankind capable of adapting to the big shifts in employment? Probably the risk to some of the professions is exaggerated as the importance of human interactions and discretion cannot be underestimated.

Many believe that greater automation would continue to raise average productivity, new sectors opening up leading to more exciting, more cognitively challenging, better paid and fewer dangerous jobs. Some experts believe that there will still be plenty of room for humans, with common sense and judgment, to complement the work of machines. The advancements such as autonomous cars have the potential to reverse the trend of global warming and drastically reduce our dependence on fossil fuels.

Individuals will need to cultivate skills such as idea generation or performing arts where humans currently have the comparative advantage. The recommendations for policymakers could include boosting entrepreneurs to enable them to invent the new industries and jobs necessary to replace the old ones and refocusing education to emphasise creativity and interpersonal skills. Thus, while the debate over philosophical and ethical aspects will continue, mankind will need to exercise intellectual discernment to contain negative fallouts of technology developments.

On a separate note, the much awaited IndAS has finally seen the light of the day. The Ministry of Corporate Affairs notified the Companies (Indian Accounting Standards) Rules 2015 which come into force on 1st April, 2015. The announcement came while the 5th Residential Study Course on IFRS/Ind AS organised by the BCAS was in progress. Thus, your Society became the first organisation in India to hold a program on the notified Ind AS.

By the time you read this message, we would be busy dissecting provisions of the Finance Bill, 2015 and the Union Budget for 2015-16. The recent election results in Delhi suggest that Aam Aadmi is getting restless. It tells that no ruling dispensation can take the public for granted and let’s hope that the Government has learnt useful lessons. We look forward to the first full-fledged budget of the NDA to be a step towards fulfilling all the promises made and meeting raised expectations that puts India back on a high and all-encompassing growth trajectory.

With warm regards,

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Direct Taxes

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55. Explanatory notes to the provisions of Finance (No 2) Act, 2014 – Circular No. 1 dated 21 January 2015

56. CBDT has issued instruction regarding acceptance of the Order of the Hon’ble High Court of Bombay in the case of Vodafone India Services Pvt. Ltd.- Instruction No. 2 dated 29 January 2015

57. Interest under section 234A of the Act not to be charged on the self assessment tax paid before the due date of filing of the return – Circular no. 2/2015 dated 10 February 2015

58. TDS/TCS is deducted but not deposited within the due date – Circular dated 2 February 2015

All cases where TDS/TCS is deducted but not deposited within the due date, as prescribed, are punishable u/s 276B/276BB or 278A. The selection of cases and their processing is governed by Instruction F.No. 285/90/2008-IT(Inv-I)/05 dated 24th April 2008 which has been modified by the CBDT [vide F.No.285/90/2013- IT(Inv.)] dated 7th February 2013. Presently, the monetary limit specified for cases to be considered for prosecution is as under:-

(i) Cases, where amount of tax deducted is1,00,000 or more and the same is not deposited by the due date as prescribed shall mandatorily be processed for prosecution in addition to the recovery.

(ii) Cases, where the tax deducted is between Rs. 25,000 and Rs. 1,00,000 and the same is not deposited by the due date as prescribed may be processed for prosecution depending upon the facts and circumstances of the case, like where there are instances of repeated defaults and/or tax has not been deposited till detection.

The circular further prescribes the procedure for identification of cases of default, launching prosecution and standard operating procedure defining role of various TDS authorities in addressing the issue of prosecution and compounding of TDS cases.

59. Protocol amending the DTAA between India and of South Africa for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income shall come into force from 26th November, 2014-Notification No. 10-2015-FT and TR-II dated 2nd February 2015

60. Income-tax (2nd Amendment) Rules, 2015 – Amendment in Rule 44E and introduction of Form 3CEFB – Notification No. 11 dated 4th February 2015[S.O.350(E)]

CBDT prescribes Safe Harbour Rules for specified Domestic Transactions which areapplicable for a Government company engaged in generating and supply of electricity, transmission of electricity, wheeling of electricity and Form No. 3CEFB prescribed.

61. Commodities Transaction Tax (First Amendment) Rules, 2014 – Amendment in Rule 3 – Notification No. 13 dated 10th February 2015 [F.No. 142-09-2013-TPL]

62. Clarification regarding amounts not deductible under section 40(a)(i) of the Act – Circular No. 3 dated 12th February 2015

As per the Instruction No. 2/2014 dated 26-02-2014 of CBDT, it has been clarified that under the provisions of section 195 of the Act the AO will determine the appropriate portion chargeable to tax on which TDS should have been deducted in case of prescribed foreign remittance. Now CBDT clarifies that the disallowance u/s. 40(a)(ia) of the Act would be connected to such appropriate amount and not the entire sum remitted.

63. CBDT Lays down procedure for launching prosecution for TDS / TCS defaults – copy of the same is available on www.bcasonline.org

64. Clarification regarding aaplicability of Section 143(1D) of the Act – Instruction no. 1 of 2015 dated 13 January 2015

CBDT has clarified that in case notice has been issued u/s. 143(2) of the Act for scrutiny, then the return need not be processed u/s. 143(1D) of the Act. Also the scrutiny assessment would be completed expediously in such cases.

65. Statement of income to be furnished by business trusts to prescribed authorities and unit holders in prescribed Form 64A and Form 64B – respectively – Income tax (1st Amendment) Rules 2015 – Notification no. 3/2015 dated 19.1.15

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